Financial Conservatism and Firms' Investment Behaviors During the Global Finance Crisis-Evidence from Listed Chinese Companies

Under the backdrop of current global finance crisis, this paper empirically investigates the impacts of financially conservative policy adopted during the pre-crisis period on firms' investment behaviors in crisis. This paper shows that, (1) during the pre-crisis period, financially conservative firms invest relatively less, and financially aggressive firms invest relatively more, (2) in the crisis period, financially conservative firms greatly increase their investment expenditures, and financially aggressive firms decrease their investment expenditures substantially, however there is no evidence to show that the former invest more than the latter at the same period, (3) financially conservative firms have greater capacity to raise debt funds, and their sensitivity of investment to internal funds is relatively lower than that of financially aggressive firms, Which, In contrast, rely much on internal cash flow to support their investment expenditures. (4) in the crisis, financially conservative firms' investment expenditures mainly depend on their growth opportunities.