Abstract
Using publicly listed firms in the UK, we examine the time-series variation of investment-cash flow sensitivity after directly controlling for future growth opportunities in cash flow, which if overlooked, as in the literature, could bias inferences. We find that investment-cash flow sensitivity is disappearing over time, even for constrained firms during the global financial crisis when credit constraints were more significant or binding. Our results not only confirm the decline in investment-cash flow sensitivity that is not explained by factors so far identified in the literature but also its diminishing usefulness as a proxy of financial constraints.
Original language | English |
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Article number | 101397 |
Number of pages | 8 |
Journal | Finance Research Letters |
Early online date | 12 Dec 2019 |
DOIs | |
Publication status | E-pub ahead of print - 12 Dec 2019 |
Keywords
- Financial constraints
- Investment-cash flow sensitivity
- Time variations