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Financial constraints, agency cost and firm’s investment behavior: Evidence from listed companies of China

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Financial constraints due to the imperfection of capital market have been emphasized as an important factors determining investment by researchers recently. Beside of which, the soft budget constraints (SBC) and agency problem caused by dual property structure of enterprise system are even more important for investment in transitional China. Combing the background of aggregate investment, this paper analyzes the investment behavior and its inner mechanism of listed company in China from different views of SBC, agency cost theory and financial constraints. Based on the empirical study of 1 373 listed company, we find there is indeed some differences for SOE and non-SOE in the aspect of financial constraints even the hypothesis on nexus of cash flow and investment fails. Evidence has been found to support that principal-agency problem in the background of SBC and financial constraints can explain the investment behavior of listed company jointly, which provides another way to interpret the investment behavior of listed company in transitional country.


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