Credit Expansion, Free Cash Flow and Enterprise Investment: An Empirical Study Based on Listed Companies in China

  •  Nan Zhou    
  •  Wai Yan Shum    
  •  Sze Nam Chan    
  •  Fujun Lai    


By using the data of 936 listed companies from 2009 to 2014 in China, we use GMM method to empirically investigate whether credit expansion and free cash flow connect with the investment in enterprises. We decompose the ineffective investment into over-investment and insufficient-investment by drawing up Richardson’s over-investment measurement method. The empirical results find that credit expansion and free cash flow promote corporate new investment and over-investment, which is also confirmed by the robustness test.

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