Investment-cash flow sensitivity and financing constraints: New evidence from Indian business group firms
A controversy exists on the use of the investment-cash flow sensitivity as a measure of financing constraints of firms. We re-examine this controversy by analyzing firms affiliated to Indian business groups. We find a strong investment-cash flow sensitivity for both group-affiliated and independent firms, but no significant difference in the sensitivity between them. Additional tests consistently demonstrate that investment-cash flow sensitivity of Indian group affiliated firms is not significantly lower relative to unaffiliated firms.
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