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Is the investment-cash flow sensitivity still useful to gauge financing constraints?

Author

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  • Jamel E. Chichti
  • Walid Mansour

Abstract

Most of the papers in corporate finance use the investment-cash flow sensitivity as a key metric to gauge financing constraints. However, it has been documented in the theoretical and empirical literature that this metric is not necessarily symptomatic of financing constraints. In this paper, we revisit the debate among authors regarding the usefulness of the so-called sensitivity in the context of the moral hazard literature. We theoretically show that the interpretation of this metric as an indicator of financing constraints is sceptical.

Suggested Citation

  • Jamel E. Chichti & Walid Mansour, 2010. "Is the investment-cash flow sensitivity still useful to gauge financing constraints?," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 3(1), pages 71-84.
    • Handle: RePEc:ids:ijepee:v:3:y:2010:i:1:p:71-84
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    Citations

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    Cited by:

    1. Hechem Ajmi & Salina Kassim & Hassanuddeen Abdul Aziz & Walid Mansour, 2019. "A Literature Review of Financial Contracting Theory from the Islamic and Conventional Overviews: Contributions, Gaps, and Perspectives استعراض أدبيات نظرية التعاقد المالي من المنظور الإسلامي والتقليدي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 32(2), pages 25-42, January.
    2. Mansour, Walid, 2014. "Information asymmetry and financing constraints in GCC," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 19-29.
    3. Siddarth Roche & Sizhong Sun & Riccardo Welters, 2022. "Do Financial Constraints Reduce Process Innovation? Evidence from Australian Firms," The Economic Record, The Economic Society of Australia, vol. 98(323), pages 335-353, December.

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