IDEAS home Printed from https://ideas.repec.org/p/exe/wpaper/0609.html
   My bibliography  Save this paper

On the Relationship between the Investment-Cashflow Sensitivity and the Degree of Financing Constraints

Author

Listed:
  • Alfonsina Iona

    (Aston Business School, Aston University)

  • Leone Leonida

    (Department of Economics, Queen Mary, University of London)

  • Aydin Ozkan

    (Department of Economics and Related Studies, University of York)

Abstract

We investigate whether the investment-cash flow sensitivity is monotonic in the degree of financing constraints. By using a large panel of publicly traded non-financial U.K. firms, we show that the investment-cash flow sensitivity is neither monotonically increasing nor decreasing in the most common proxies of financing constraints; on the contrary, an inverse U-shaped relationship is observed. Robustness exercises show that the parameter of interest displays, to some extent, a monotonic behavior with respect to size only; however, in contrast with much of the relevant literature, it is found to be greater for larger firms, whose characteristics would hardly lead the researcher to classify them as more financially constrained. If taken as a whole, our findings suggest that higher investment-cash flow sensitivities may hardly be used as evidence of greater financial constraints.

Suggested Citation

  • Alfonsina Iona & Leone Leonida & Aydin Ozkan, 2006. "On the Relationship between the Investment-Cashflow Sensitivity and the Degree of Financing Constraints," Discussion Papers 0609, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0609
    as

    Download full text from publisher

    File URL: https://exetereconomics.github.io/RePEc/dpapers/DP0609.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sultana Shahida Abedin, 2015. "Do Firms’ Financial Constraint Can Be Identified By Their Investment-Cash Flow Sensitivity?," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(2), pages 97-115.
    2. Mihaela SIMIONESCU, 2016. "The Investment Determinants For United Kingdom Companies," Romanian Economic Business Review, Romanian-American University, vol. 11(2), pages 223-231, June.

    More about this item

    Keywords

    Investment cash flow sensitivity; Financial constraints; Internal funds; Capital market imperfections.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:exe:wpaper:0609. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sebastian Kripfganz (email available below). General contact details of provider: https://edirc.repec.org/data/deexeuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.