Financial Constraints and Investment-Cash Flow Sensitivity
32 Pages Posted: 23 Feb 2002
Date Written: February 2002
Using a large sample of US listed companies, we show that the relation between financial constraints and investment-cash flow sensitivity is non-linear. The different results generated in previous studies could be explained by sample selection problems. We show that when using actual level of investment in the regression, as in the standard investment literature, coefficient on cash flow cannot be an accurate measure of financial constraints. The monotonic and positive relationship between financial constraints and investment-cash flow sensitivity is not robust in large-sample studies using detailed classification scheme.
Keywords: Capital Market Imperfection, Financial Constraints, Investment-Cash Flow Sensitivity
JEL Classification: D21, G30, G31
Suggested Citation: Suggested Citation