This paper briefly reviewed the investment theory-Q theory and explained why Q theory cannot indicate the change of investment from the perspective of cash flow and misvaluation. I further demonstrated the foreign research and domestic research on the channel through which misvaluation influent investment. Investment Theory As one of the most important part of the real economy, investment will not only affect short-term employment and economic growth, but also lead to economic cycle

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... [1] . Investment is driven by many factors; one of them is the stock market. The relationship between stock market and investment has been studied for a long time. q Theory is one of the most important theory explaining the investment and stock market which was proposed by Tobin in 1969. The theory concludes that the optimal investment depends on the present value of q by introducing a simple adjustment cost function and thus links q ratio (the ratio of a firm's market value to its replacement cost) to investment. If q > 1, the market value of the enterprise is greater than the replacement cost, which means the purchase of newly produced capital goods is more favorable than the existing capital goods, the enterprise should increase investment; On the contrary, if <1, enterprises should reduce investment [2] . Hayashi (1982) further demonstrated the relationship between average q and marginal q and he proved that when an enterprise is a price-taker and the production function and adjustment cost function are linear, marginal q is equal to average q. The above research conclu-sions provide convenience for subsequent scholars to test the q theory [3]. Reasons of Q Theory Didn't Work? Many empirical studies found that the q theory could not explain why investment changes. This has triggered a wide academic discussion on this issue. The Effect of Cash Flow One class of literature is explained from the perspective of cash flow. According to Fazzari et al. (1988), investment demand only depends on investment cost if all enterprises can obtain external financing and internal and external financing can replace freely. But if an enterprise is subject to financing constraints, due to the existence of "financing hierarchy", internal cash flow has cost advantages and investment is limited by internal cash flow [4] . They take the investmentcash flow sensitivity as evidence to support financing constraints. However, Kaplan and Zingales (1997) analyzed the enterprises identified by Fazzari et al. (1988) as having high cash flow sensitivity, and drew a totally different conclusion from them that enterprises with low financing constraints have stronger cash flow sensitivity, while those with high financing constraints have weaker cash flow sensitivity. The debate between these two views has been long and inconclusive [5] .