The Cash Flow/investment Relationship: Evidence from U.S. Manufacturing Firms
AbstractThis paper explores reasons for the strong relationship between cash flow and capital investment spending. The equilibrium level of Tobin's q is used to distinguish between liquidity constraints arising from asymmetric information and managerial over-investment of free cash flow. Results suggest that both the Jensen (1986) free cash flow and the Myers and Majluf (1984) pecking order hypotheses are potential explanations for the investment/cash flow relationship. Free cash flow behavior appears to arise most strongly in large, low-dividend firms when they invest in tangible assets. Pecking order behavior appears to arise in smaller, low-dividend firms and in firms making less tangible investments.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Financial Management Association in its journal Financial Management.
Volume (Year): 23 (1994)
Issue (Month): 2 (Summer)
Contact details of provider:
Postal: University of South Florida 4202 E. Fowler Ave. COBA #3331 Tampa, FL 33620
Web page: http://www.fma.org/
More information through EDIRC
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lee, Hei-Wai & Gentry, James A., 1995. "An empirical study of the corporate choice among common stock, convertible bonds and straight debt: A cash flow interpretation," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(4), pages 397-419.
- Pawlina, G. & Renneboog, L.D.R., 2005.
"Is Investment-Cash Flow Sensitivity Caused by the Agency Costs or Asymmetric Information? Evidence from the UK,"
2005-23, Tilburg University, Center for Economic Research.
- Pawlina, G. & Renneboog, L.D.R., 2005. "Is Investment-Cash Flow Sensitivity Caused by the Agency Costs or Asymmetric Information? Evidence from the UK," Discussion Paper 2005-001, Tilburg University, Tilburg Law and Economic Center.
- Block, Joern H., 2012. "R&D investments in family and founder firms: An agency perspective," Journal of Business Venturing, Elsevier, vol. 27(2), pages 248-265.
- Francis, Bill & Hasan, Iftekhar & Song, Liang & Waisman, Maya, 2013. "Corporate governance and investment-cash flow sensitivity: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 15(C), pages 57-71.
- Goergen, Marc & Renneboog, Luc, 2001.
"Investment policy, internal financing and ownership concentration in the UK,"
Journal of Corporate Finance,
Elsevier, vol. 7(3), pages 257-284, September.
- Goergen, M. & Renneboog, L.D.R., 2000. "Investment Policy, Internal Financing and ownership Concentration in the UK," Discussion Paper 2000-116, Tilburg University, Center for Economic Research.
- Kadapakkam, Palani-Rajan & Kumar, P. C. & Riddick, Leigh A., 1998. "The impact of cash flows and firm size on investment: The international evidence," Journal of Banking & Finance, Elsevier, vol. 22(3), pages 293-320, March.
- Kato, Hideaki Kiyoshi & Loewenstein, Uri & Tsay, Wenyuh, 2002. "Dividend policy, cash flow, and investment in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 10(4), pages 443-473, September.
- Viviana Fernández, 2007.
"Spatial Linkages in International Financial Markets,"
The Institute for International Integration Studies Discussion Paper Series
- Viviana Fernandez, 2011. "Spatial linkages in international financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 11(2), pages 237-245.
- Gugler, Klaus & Mueller, Dennis C. & Weichselbaumer, Michael, 2012. "The determinants of merger waves: An international perspective," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 1-15.
- Degryse, Hans & de Jong, Abe, 2006. "Investment and internal finance: Asymmetric information or managerial discretion?," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 125-147, January.
- Elias Dedoussis & Afroditi Papadaki, 2010. "Investment spending and corporate governance: Evidence from the ASE listed firms," Managerial Finance, Emerald Group Publishing, vol. 36(3), pages 201-224, March.
- François-Serge Lhabitant & Olivier Tinguely, 2002. "Financial Constraints and Investment: the Swiss Case," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(II), pages 137-163, June.
- Degryse, H. & de Jong, A., 2001. "Investment and Internal Finance: Asymmetric Information or Managerial Discretion?," ERIM Report Series Research in Management ERS-2001-86-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
- Deshmukh, Sanjay & Vogt, Stephen C., 2005. "Investment, cash flow, and corporate hedging," Journal of Corporate Finance, Elsevier, vol. 11(4), pages 628-644, September.
- Pindado, Julio & Rodrigues, Luis & de la Torre, Chabela, 2008. "How do insolvency codes affect a firm's investment?," International Review of Law and Economics, Elsevier, vol. 28(4), pages 227-238, December.
- Chen, Sheng-Syan & Ho, Kim Wai & Lee, Cheng-few & Yeo, Gillian H. H., 2000. "Investment opportunities, free cash flow and market reaction to international joint ventures," Journal of Banking & Finance, Elsevier, vol. 24(11), pages 1747-1765, November.
- Colombo, Massimo G. & Croce, Annalisa & Guerini, Massimiliano, 2013. "The effect of public subsidies on firms’ investment–cash flow sensitivity: Transient or persistent?," Research Policy, Elsevier, vol. 42(9), pages 1605-1623.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Connors) The email address of this maintainer does not seem to be valid anymore. Please ask Courtney Connors to update the entry or send us the correct address.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.