Regional Disparities and Investment-Cash Flow Sensitivity: Evidence from Chinese Listed Firms

20 Pages Posted: 25 Apr 2009

See all articles by Jianjun Sun

Jianjun Sun

Hainan University

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration

Date Written: April 24, 2009

Abstract

In China, regional disparities are important. We examine the difference in the sensitivity of investment to cash flow between firms in inland regions and those in coastal regions. By using the financial data of Chinese listed firms, we found that firms in inland regions rely more on their internal funds in terms of their investment activities than those in coastal regions and that the sensitivity gap between inland and coastal firms widened in the recent contractionary monetary policy period. This suggests that firms in inland regions are harder to obtain outside funds due to unfavorable social and economic environments for inland firms. Our findings suggest that capital markets in China respond rationally to the potential impact of regional disparities on a firm's performance.

Keywords: sensitivity of investment to cash flow, sensitivity gap, regional disparities, Chinese economy

JEL Classification: O16, G14, G31

Suggested Citation

Sun, Jianjun and Yamori, Nobuyoshi, Regional Disparities and Investment-Cash Flow Sensitivity: Evidence from Chinese Listed Firms (April 24, 2009). Available at SSRN: https://ssrn.com/abstract=1394763 or http://dx.doi.org/10.2139/ssrn.1394763

Jianjun Sun

Hainan University ( email )

No. 58, Renmin Avenue
570228, P.R.
Haikou, HainanProvince
China

Nobuyoshi Yamori (Contact Author)

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

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