Abstract

http://ssrn.com/abstract=214911
 
 

References (27)



 
 

Citations (4)



 
 

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Investment Spending In The Netherlands: The Impact Of Liquidity And Corporate Governance


Abe De Jong


Erasmus University - Rotterdam School of Management

Hans Degryse


KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

February 2000


Abstract:     
This paper examines the relation between cash flow, corporate governance and fixed-investment spending. In perfect capital markets we expect no systematic relationship. However, Myers and Majluf's (1984) asymmetric information hypothesis and Jensen's (1986) managerial discretion hypothesis present imperfections and predict a positive impact of cash flow on investment in fixed assets. Aspects of corporate governance play an important role in both theories. We measure the impact of cash flow on investment for a set of Dutch firms and aim to distinguish between the asymmetric information hypothesis and the managerial discretion hypothesis. Our findings show that cash flow is an important determinant of investment expenditures. The impact of cash flow is largest for firms with low growth opportunities suggesting that the managerial discretion hypothesis is most at work in the Dutch setting. We also discern that the impact of governance characteristics on both investment and the cash flow-sensitivity of investment differ between firms having low and high growth opportunities. This implies that governance affects the managerial discretion and asymmetric information hypotheses differently.

Number of Pages in PDF File: 32

JEL Classification: G15, G31, G32

working papers series


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Date posted: March 10, 2000  

Suggested Citation

de Jong, Abe and Degryse, Hans, Investment Spending In The Netherlands: The Impact Of Liquidity And Corporate Governance (February 2000). Available at SSRN: http://ssrn.com/abstract=214911 or http://dx.doi.org/10.2139/ssrn.214911

Contact Information

Abe De Jong (Contact Author)
Erasmus University - Rotterdam School of Management ( email )
P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 1022 (Phone)
HOME PAGE: http://web.eur.nl/fbk/dep/dep5/faculty/ajong
Hans Degryse
KU Leuven, Department Accounting, Finance and Insurance ( email )
Naamsestraat 69
Leuven, B-3000
Belgium
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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References:  27
Citations:  4
Footnotes:  20

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