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What Drives the Relationship Between Financial Flexibility and Firm Performance: Investment Scale or Investment Efficiency? Evidence from China

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  • Chun-Ai Ma
  • Yanbo Jin

Abstract

Financial flexibility helps improve firm performance. By using data from Chinese listed companies, we examine whether investment scale or investment efficiency drives the relationship between financial flexibility and firm performance via a special mediator testing method that is widely used in the psychology literature (Baron and Kenny, 1986). We find that financial flexibility has a significant and positive effect on both investment and firm performance. However, investment scale rather than investment efficiency seems to drive firm performance. This finding helps us understand that Chinese companies tend to emphasize investment expansion more than they do investment efficiency to improve firm performance.

Suggested Citation

  • Chun-Ai Ma & Yanbo Jin, 2016. "What Drives the Relationship Between Financial Flexibility and Firm Performance: Investment Scale or Investment Efficiency? Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(9), pages 2043-2055, September.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:9:p:2043-2055
    DOI: 10.1080/1540496X.2015.1098036
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    1. repec:mth:ijafr8:v:9:y:2019:i:1:p:245-256 is not listed on IDEAS
    2. Haroon ur Rashid Khan & Waqas Bin Khidmat & Muhammad Danish Habib & Sadia Awan, 2022. "Academic directors in board and corporate expropriation: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 372-397, March.
    3. Bao-Guang Chang & Kun-Shan Wu, 2021. "The nonlinear relationship between financial flexibility and enterprise risk-taking during the COVID-19 pandemic in Taiwan’s semiconductor industry," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 307-333, June.
    4. Islam, Md. Rashidul & Hossain, Monirul Alam & Uddin, Mohammad Shamsu & Bahta, Dawit Teclemariam, 2020. "Does Financial Flexibility foster Investment Efficiency? Evidence from an Emerging Market," Asian Business Review, Asian Business Consortium, vol. 10(2), pages 121-136.
    5. Chao, Ching-Hsiang & Huang, Chih-Jen, 2022. "Firm performance following actual share repurchases: Effects of investment crowding out and financial flexibility," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    6. Arshed Fouad Altameemi, 2021. "The Relationship Between Financial Flexibility and Market Value Added: The Mediation Effect Role of the Corporate Size (A Practical Study on a Sample of Jordanian Industry Sector Firms)," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(1), pages 1-52, January.
    7. Zaher Abdel Fattah Al-Slehat, 2021. "The Impact of the Financial Flexibility on the Performance: An Empirical Study on a Sample of Jordanian Services Sector Firms in Period (2010-2017)," International Journal of Business and Management, Canadian Center of Science and Education, vol. 14(6), pages 1-1, July.
    8. Xiaodong Teng & Bao-Guang Chang & Kun-Shan Wu, 2021. "The Role of Financial Flexibility on Enterprise Sustainable Development during the COVID-19 Crisis—A Consideration of Tangible Assets," Sustainability, MDPI, vol. 13(3), pages 1-16, January.

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