Is Investment-Cash Flow Sensitivity a Good Proxy for Financial Constraints? Evidence from Listed Companies in Manufacturing Sector of China

This article aims to study the question that whether the investment-cash flow sensitivity is a good proxy for financial constraints, based on the special system background of China. The study introduces uncertain variables into the accelerator model and uses the data of listed companies in manufacturing sector of China. The sample data is classified by country share proportion, return on equity and gross asset scale. Empirical tests show that the relationship between investment-cash flow sensitivity and financial constraints is uncertain and FHP does not get support in terms of those three dimensions. The conclusion is that Investment-Cash Flow Sensitivity is not a good proxy for Financial Constraints when the research integrated with factors of China´s special institutional system, policy and market.