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Growth Opportunities or Cash Flow Drives Innovative Investment —Evidence with different ownership structure from China

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  • Xindong Zhang
  • Haiyan Xue
  • Yongmin Zhang
  • Shusheng Ding

Abstract

Existing theoretical investment literature shows that Tobin’s q is a crucial factor of investment, while empirical studies find that cash flow exhibits a more significant effect on investment compared with Tobin’s q. Using up-to-date empirical data, we distill innovative investment from total investment to investigate this issue using a panel of 335 innovative companies in China. We unveil that innovative investment is more sensitive to growth opportunity (q) than cash flow. Furthermore, we discover that high investor sentiment can facilitate financing activities of privately owned enterprises, which may impel their innovative investments. On the other hand, state-owned enterprises will raise their tangible investments rather than innovative investment during periods of economic expansion. Lastly, we reveal that external financing cost is the channel in the external financing environment that could affect corporate innovative investment.

Suggested Citation

  • Xindong Zhang & Haiyan Xue & Yongmin Zhang & Shusheng Ding, 2020. "Growth Opportunities or Cash Flow Drives Innovative Investment —Evidence with different ownership structure from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(11), pages 2491-2508, September.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:11:p:2491-2508
    DOI: 10.1080/1540496X.2019.1668268
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