Abstract:

Financial flexibility is an ability by which an enterprise reserves certain financial resources to deal with shocks from future adverse events and grasp favorable opportunities. By adding financial flexibility into the equations of investment-cash flow sensitivity， the ways how financial flexibility affects investment-cash flow sensitivity were analyzed. Based on the model estimation of the listed companies’ annual data from 2000 to 2013 in China， the results showed that financial flexibility has a significant downward effect on non-state-owned enterprises’ investment-cash flow sensitivity. If monetary policy is taken into account， no matter whether an enterprise is state-owned or non-state-owned， financial flexibility can effectively alleviate investment-cash flow sensitivity in the context of monetary policy tightening.

Key words: financial flexibility, investment-cash flow sensitivity, ultimate controller, monetary policy