Decreasing investment-cash flow sensitivity: Further UK evidence

Journal article


Machokoto, Michael, Tanveer, Umair, Ishaq, Shamaila and Areneke, Geofry 2019. Decreasing investment-cash flow sensitivity: Further UK evidence. Finance Research Letters. https://doi.org/10.1016/j.frl.2019.101397
AuthorsMachokoto, Michael, Tanveer, Umair, Ishaq, Shamaila and Areneke, Geofry
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.

Keywordsfinancial constraints; Investment-cash flow sensitivity; time variations
Year2019
JournalFinance Research Letters
PublisherElsevier
ISSN1544-6123
Digital Object Identifier (DOI)https://doi.org/10.1016/j.frl.2019.101397
Web address (URL)http://hdl.handle.net/10545/624442
hdl:10545/624442
Publication dates12 Dec 2019
Publication process dates
Deposited04 Feb 2020, 09:11
Accepted11 Dec 2019
ContributorsUniversity of Northampton, University of Bristol, University of Derby and Manchester Metropolitan University
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