Financial Conservatism and Firms' Financing and Investment Behaviors during the Global Financial crisis -Evidence from Listed Chinese Companies

Under the backdrop of current global financial crisis, this paper empirically investigates the impacts of financially conservative policy adopted during the pre-crisis period on firms' financing and investment behaviors in crisis. This paper shows that, financially conservative firms have greater capacity to raise debt funds, and their sensitivity of investment to internal funds is relatively lower than that of control firms, Which, In contrast, rely much on internal cash flow to support their investment expenditures. In general, the empirical evidence provided in the paper supports the view that, when hit by adverse shock, firms adopting conservative financial policy before crisis possess great financial flexibility, and can raise more needed funds for valuable investment opportunities.