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| Financing Constraints, Overinvestment, and Cash Flow-price Sensitivity |
| LIAO Yi gang |
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Abstract Studies have confirmed that earnings management, accounting conservatism, and law of diminishing marginal investment returns all may affect the persistence of accrued earnings, and reveal that the capital market exerts no impact of “functional fixation” on accrued earnings. But little research focuses on the factors for the relationship between cash flow and share prices. This paper finds that overinvestment will significantly ease cash flow-price sensitivity, and for the companies with high-level cash holdings and tighter financing constraints, the negative relation between overinvestment and the cash flow-price sensitivity is stronger. This paper reveals the negative economic consequences of excessive investment from the perspective of cash flow-price sensitivity, on the other hand also confirms that the capital market exerts no impact of “functional fixation” on cash flow.
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Received: 10 August 2012
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Corresponding Authors:
LIAO Yi gang
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2013, Vol. 1 
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