Investment, Finacial Factors and Cash Flow: Evidence from UK Panel Data

41 Pages Posted: 8 Jun 2004 Last revised: 13 Jul 2010

See all articles by Michael P. Devereux

Michael P. Devereux

Centre for Business Taxation, Oxford University; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); University of Oxford - Said Business School; University of Oxford - Said Business School

Fabio Schiantarelli

Boston College - Department of Economics; IZA Institute of Labor Economics

Date Written: September 1989

Abstract

In this paper we provide some econometric evidence on the impact of financial factors like cash flow, debt and stock measures of liquidity on the investment decisions of U. K. firms. These variables are introduced via an extension of the Q model of investment which explicitly includes agency/financial distress costs. We discuss if the significance of cash flow may be due to the fact that it proxies for output or because it is a better measure of market fundamentals than Q. Moreover we investigate if the effect of financial factors varies across different types of firms, according to size, age, and type of industry (growing and declining). We analyze the determinants of the magnitude of the cash flow effect and explain why caution must be exercised in attributing inter-firm differences only to differences in the importance of agency or financial distress costs.

Suggested Citation

Devereux, Michael P. and Schiantarelli, Fabio, Investment, Finacial Factors and Cash Flow: Evidence from UK Panel Data (September 1989). NBER Working Paper No. w3116. Available at SSRN: https://ssrn.com/abstract=227290

Michael P. Devereux (Contact Author)

Centre for Business Taxation, Oxford University ( email )

Said Business School
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Oxford, OX1 1HP
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+44 1865 288507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

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Institute for Fiscal Studies (IFS) ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Fabio Schiantarelli

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-4512 (Phone)
617-552-2308 (Fax)

HOME PAGE: http://https://sites.google.com/a/bc.edu/fabio-schiantarelli/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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