Abstract

Our paper establishes the causal links among the driving factor, flexibility degree and performance of a firm and tests these links based on two samples made of American and Chinese listed companies in manufacturing industry respectively from 2009 to 2012. Our results show the financial flexibilities of American and Chinese firms are mainly driven by strengthening risk management and chasing investment opportunities respectively, the degree of financial flexibility has positively impact on firm performance, and the effect of financial flexibility driven by chasing investment opportunities on performance is more statistically significant than financial flexibility driven by strengthening risk management. Our results suggest that a firm can improve its performance if it retains a high flexibility degree driven by chasing investment opportunities.

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