Investment-cash flow sensitivities: Evidence from China listed real estate operating companies

Abstract

Modigliani and Miller (Am Econ Rev 48(3):261-297, 1958) suggested the investment-cash flow irrelevance theorem under perfect information. But substantial empirical evidence documents strong influence of cash flow on firms' investment spending under imperfect information. This makes cash flow play an important role in business enterprise operation. This paper explores the relationship between investment expenditure and internal and external cash flow of China listed real estate operating companies during 2008-2011. Real estate operating companies are faced with both rapid growth opportunity and severe financial constrain in China. The results of this paper provides more evidence to help understand the investment behavior of real estate companies. © Springer-Verlag Berlin Heidelberg 2014.