Does Operating Flexibility Improve Firm Investment Efficiency? Evidence from China

Employing a sample of listed Chinese firms, this study investigates whether operating flexibility improves investment efficiency. The findings indicate that greater operating flexibility improves investment efficiency. Moderation analyses further indicate that this effect is more pronounced for firms facing higher financing costs, higher credit risk, and greater environmental uncertainty. Additional tests further reveal that the efficiency gains associated with flexibility are concentrated among firms with weaker implicit government guarantees and firms headquartered in more economically developed regions. Overall, the findings identify operating flexibility as an important internal adjustment capability that helps firms improve capital allocation in emerging markets.