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A semi-parametric analysis of the cash flow sensitivity of cash

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  • Kadzima, Marvelous
  • Machokoto, Michael

Abstract

Using a semi-parametric approach that allows for a flexible functional form and a large firm-level international dataset, we re-examine the contentious issue of whether the cash flow sensitivity of cash is positive or negative. Our findings suggest that the cash flow sensitivity of cash is negative at lower levels of cash flow and positive at higher levels, which could explain the mixed results in the literature. Additionally, we find that the cash flow sensitivity of cash varies based on different levels of cash flow, across time, and among developing and developed countries for estimates based on non-parametric methods. Our findings contradict those based on parametric methods that assume a linear functional form and suggest no significant asymmetries in the cash flow sensitivity of cash.

Suggested Citation

  • Kadzima, Marvelous & Machokoto, Michael, 2023. "A semi-parametric analysis of the cash flow sensitivity of cash," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004257
    DOI: 10.1016/j.frl.2023.104053
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    More about this item

    Keywords

    Financial constraints; Institutions; Semi-parametric; Developing countries; Panel data; Cash flow sensitivity of cash;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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