The Determinants of Investment-Cash Flow Sensitivity

41 Pages Posted: 24 Jul 2006

See all articles by Gayané Hovakimian

Gayané Hovakimian

Fordham University, Gabelli School of Business

Date Written: 2006

Abstract

Using firm-level estimates of investment-cash flow sensitivity, I classify firms into groups of high, low, and negative sensitivity. I find that investment-cash flow sensitivity is non-monotonic with respect to financial constraints, cash flows, and growth opportunities. Specifically, firms with negative cash flow sensitivity have the lowest cash flows and highest growth opportunities, and appear the most financially constrained. Cash flow insensitive firms have the highest cash flows and lowest growth opportunities, and appear the least financially constrained. At least partially, negative cash flow sensitivity is driven by high investment and low cash flow levels at the inception of firms as public companies, which decrease and increase, respectively, with age.

Keywords: Cash flow sensitivity, Investment, Financing constraints

JEL Classification: G31, G32

Suggested Citation

Hovakimian, Gayané, The Determinants of Investment-Cash Flow Sensitivity (2006). Available at SSRN: https://ssrn.com/abstract=919904 or http://dx.doi.org/10.2139/ssrn.919904

Gayané Hovakimian (Contact Author)

Fordham University, Gabelli School of Business ( email )

Joseph A. Martino Hall
45 Columbus Ave
New York, NY 10023
United States
212-636-7021 (Phone)

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