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The Cash Flow Sensitivity of Investment: A Switching Regression Approach Based on Korean Firm Data (in Korean)

Author

Listed:
  • Jaewoon Koo

    (Department of Economics, Chonnam National University)

  • Kyunghee Maeng

    (Department of Economics, Chonnam National University)

Abstract

The sensitivity of investment with respect to cash flow is positive in imperfect financial markets. Using a switching regression model, cash flow sensitivity of investments in chaebol firms and large firms appears to be higher. Also, investments are found to be more responsive to cash flow during monetary contraction periods. These findings imply that monetary policy works through a credit channel. Furthermore, it appears that monetary policy exerts distributional effects as well as aggregate effects on that firms are unevenly affected by monetary changes.

Suggested Citation

  • Jaewoon Koo & Kyunghee Maeng, 2011. "The Cash Flow Sensitivity of Investment: A Switching Regression Approach Based on Korean Firm Data (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 17(2), pages 56-89, June.
    • Handle: RePEc:bok:journl:v:17:y:2011:i:2:p:56-89
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    More about this item

    Keywords

    Cash flow sensitivity of investment; Switching regression; Credit channel; Financial Constraints; Chaebol;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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