Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7415380 | The International Journal of Accounting | 2017 | 21 Pages |
Abstract
What role does the stock market play in the allocation of capital? Few studies have examined how being public affects firm investment in emerging markets. This study fills this gap by comparing investment behavior in public and private Chinese firms over the period 2004-2010. We find an overall improved capital allocation of public firms relative to private firms in China. By disentangling the financial constraints effect from the agency effect, we show that public firms are less likely to underinvest when there is cash flow insufficiency and more likely to overinvest when there is free cash flow. We conclude that both effects coexist and that whether or not being public improves investment behavior depends on the net effect of loosening financial constraints and worsening agency conflicts. Further examination shows that financial information plays a limited role in these effects, implying that the association between being public and firm investment may not be attributed to information asymmetry but, rather, institutional arrangement in China.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Min Xiao, Jiaxing You, Jingwen Zhao,