The effect of cash flow on investment: an empirical test of the balance sheet theory

The effect of cash flow on investment: an empirical test of the balance sheet theory Using a large data set on investments and accounting information for private firms, we put the balance sheet theory to test. We find that firm cash flow has a positive impact on investment and that the effect is enhanced for firms which are more likely to be financially constrained. We also find that the investment-cash flow sensitivity is significantly larger and more persistent during the first half of our sample period, which includes a severe banking crisis and recession. Our results suggest that financial constraints matter more in periods characterized by adverse economic conditions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Empirical Economics Springer Journals

The effect of cash flow on investment: an empirical test of the balance sheet theory

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Publisher
Springer Berlin Heidelberg
Copyright
Copyright © 2016 by Springer-Verlag Berlin Heidelberg
Subject
Economics; Econometrics; Statistics for Business/Economics/Mathematical Finance/Insurance; Economic Theory/Quantitative Economics/Mathematical Methods
ISSN
0377-7332
eISSN
1435-8921
D.O.I.
10.1007/s00181-016-1136-y
Publisher site
See Article on Publisher Site

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