Despite extensive study of investment-cash flow (ICF) sensitivity, none of the previous empirical studies provide a satisfactory explanation for why ICF sensitivity has sharply declined and even disappeared over time in some countries. Further, the existing literature has largely ignored how differences in developed and emerging countries have impacted the ICF sensitivity estimates. Using a large sample of data from 45 markets and over the 1991-2010 period, this study is the first to explain why ICF sensitivity declines over time using both cross-country and firm-level evidence. It concludes that financial development and a declining role of physical (capital) investments and tangible assets are primary reasons. Furthermore, the study is the first to investigate the ICF sensitivity relationship for a heterogeneous group of non-US markets over time, including during the recent GFC. The study finds substantial differences in the sensitivity relationship across developed and emerging markets. It also confirms that the distortionary effect of negative cash flow observations reported earlier for US data extends to international data. Finally, cash flow sensitivity of cash, along with a globally rising importance of cash liquidity, is arguably the only valid substitute for traditional ICF sensitivity relationship.
JEL Classification Number: G01, G31, G32
Keywords: Investment-Cash Flow Sensitivity, Financial Constraints, Cash Flow, Physical Investment, Cash Flow Sensitivity of Cash
학회소식
[2013년 제 4차] What Drives Investment-Cash Flow Sensitivity around
작성자 : 관리자
조회수 : 1083
게시일 :
2013-12-16
