Global Cash Flow Sensitivities
15 Pages Posted: 9 Aug 2017
Date Written: July 17, 2017
We examine the role of a country’s institutional framework for investment and financing activities. A country’s financial structure, investor rights, and legal environment are important determinants of the relation between internal cash flow and firms’ investment and financing behavior. Firms from countries with a more developed institutional framework exhibit higher financing cash flow sensitivities. These firms are more likely to substitute a cash flow shortfall with equity issues. Conversely, firms’ investment-cash flow sensitivity is higher in countries with a less developed institutional framework.
Keywords: Cash Flow Sensitivity, Financial Development, Law and Finance
JEL Classification: G20, G31, G38
Suggested Citation: Suggested Citation