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Management pay-performance sensitivity, internal cash flow and investment behavior: A test of the free cach flow theory and asymmetric information theory


The relationship between investment and financing, the two basic components of corporate finance, is of significant interest to researchers and practitioners alike. The free cash flow hypothesis and asymmetric information hypothesis are two important theories to explain the relationship between investment expenditure and cash flow. In this paper, we examine how consistency between the interests of management and shareholders influences investment-cash flow sensitivity, and how the nature of the controlling shareholder influences this relationship, so as to analyze how much the free cash flow hypothesis and asymmetric information hypothesis can explain the practice of investment and financing in China. We use pay-performance sensitivity as a proxy for the degree of consistency between shareholders and management interests. We find that investment-cash flow sensitivity is affected not only by financial constraints that caused by asymmetric information, but also by the shareholder-manager agency problem. It is found that the asymmetric information theory has more explanatory power than the shareholder-manager agency theory. In addition, the relationship between investment-cash flow sensitivity and pay-performance sensitivity is affected by the nature of controlling shareholders. Specifically, in the state-owned enterprises, the investment-cash flow sensitivity is mainly ascribed to information asymmetry problems, but in the non-state-owned enterprises, the investment-cash flow sensitivity mainly results from free cash flow.


作为企业理财行为中的两大重要组成部分, 企业投资和融资行为之间的关系一直备受理论与实务界人士的关注。 自由现金流假说和信息不对称假说是解释企业投资支出与现金流之间关系的两种重要理论。 我们考察了管理层与股东利益的拉近程度对投资现金流敏感度的影响, 以及控股股东性质对这一关系的影响, 从而分析了自由现金流假说和信息不对称假说对我国企业融投资行为的解释力。 我们用业绩报酬敏感度作为管理层与股东利益接近程度的衡量指标, 发现投资现金流敏感度不仅受到内外部信息不对称导致的融资约束的影响, 而且受到了股东-经理代理问题的影响, 但是信息不对称理论的解释力度相对较强。 另外, 投资现金流敏感度和管理层业绩报酬敏感度之间的关系受到公司控股股东所有权性质的影响。 具体讲, 在国有控股公司中, 投资现金流敏感性主要是由于信息不对称问题引起的, 而在非国有控股公司中, 投资现金流敏感性主要是由于自由现金流问题引起的。


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Correspondence to Pan Tong.

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Translated and revised from Kuaiji Yanjiu 会计研究 (Accounting Research), 2007, (10): 73–81

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Zhi, X., Tong, P. Management pay-performance sensitivity, internal cash flow and investment behavior: A test of the free cach flow theory and asymmetric information theory. Front. Bus. Res. China 3, 413–431 (2009).

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