Abstract: This paper takes the 59 listed companies in Shanghai and Shenzhen stock markets as the samples which carried out sale and leaseback from January 2007 to December 2012 and applies the event study method to analyze the market response to this behavior. The result shows that when China’s listed companies conduct sale and leaseback business, the companies with more abundant cash flow can produce more negative market response than those with less. And this phenomenon can be interpreted as the negative response of the investors who think that the sale and leaseback may have the possibility of cash abusing. Therefore, investers and the supervising departments have to recognize clearly the causes and purposes underlying this financing behavior of sale and leaseback.

Key words: sales and leaseback; cash flow; event study