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Corporate governance and investment

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  • Klaus Gugler
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    Abstract

    This article contributes in at least three ways to the investment-cash flow literature. First, it finds that the corporate governance environment of a firm affects the relationship between investment and cash flow. Second, it allows for both asymmetric information and managerial discretion explanations for positive investment-cash flow coefficients, thereby overcoming most of the ambiguities in this interpretation. Finally, by using a GMM estimator most of the problems with traditional OLS models are avoided. It is found that family-controlled firms appear to suffer from cash constraints as evidenced by a positive and robust relationship of investment to cash flow. State-controlled firms also exhibit a positive and significant cash flow sensitivity, which we explain by managerial discretion.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

    Volume (Year): 10 (2003)
    Issue (Month): 3 ()
    Pages: 261-289

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    Handle: RePEc:taf:ijecbs:v:10:y:2003:i:3:p:261-289

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    Keywords: Corporate Governance; Cash Constraints; Managerial Discretion; Rates of Return;

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    Cited by:
    1. Patrice Charlier & Céline Duboys, 2011. "Gouvernance familiale et politique de distribution aux actionnaires," Revue Finance Contrôle Stratégie, revues.org, vol. 14(1), pages 5-31., March.
    2. Mehdi Nekhili & Afifa Wali Siala & Dhikra Chebbi, 2009. "Free cash flow, gouvernance et politique financière des entreprises françaises," Working Papers CREGO 1090102, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    3. Ezzeddine Ben Mohamed & Baccar Ame & Abdelfatteh Bouri, 2013. "Investment Cash Flow Sensitivity and Managerial Optimism: A Literature Review via the Classification Scheme Technique," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 5(1), pages 007-026, June.
    4. Mykhayliv, Dariya & Zauner, Klaus G., 2013. "Investment behavior and ownership structures in Ukraine: Soft budget constraints, government ownership and private benefits of control," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 265-278.
    5. 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 2005-23, Tilburg University, Center for Economic Research.
    6. Chen, Alex A. & Cao, Hong & Zhang, Dayong & Dickinson, David G., 2013. "The impact of shareholding structure on firm investment: Evidence from Chinese listed companies," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 85-100.
    7. Jan Hanousek & Evžen Kočenda & Michal Mašika, 2012. "Corporate Efficiency: Effect of Ownership Structures and Financial Indicators," Politická ekonomie, University of Economics, Prague, vol. 2012(4), pages 459-483.
    8. Themistokles Lazarides, 2010. "Corporate governance law effect in Greece," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(4), pages 370-385, November.

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