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Corporate Investments, Cash Flows and Cash Holdings: Evidence from the Oil Industry Before and After the Financial Crisis

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  • Liqiang Chen

Abstract

This paper studies corporate investments with internal funds when firms face real investment friction such as high adjustment cost and investment planning lag using a sample of U.S. oil companies from 2003 to 2011 before and after the 2008 financial crisis. We show that firms’ capital expenditures are more sensitive to their lagged cash holdings than to their contemporaneous cash flows. By making investments with realized cash holdings, firms can avoid the investment adjustment costs that are incurred when investing with uncertain cash flows. We also show that cash flow policies are affected by liquidity constraints following the 2008 financial crisis- firms build up more cash reserves from cash flows, cut back payouts and raise more debt to maintain cash holdings.

Suggested Citation

  • Liqiang Chen, 2016. "Corporate Investments, Cash Flows and Cash Holdings: Evidence from the Oil Industry Before and After the Financial Crisis," Accounting and Finance Research, Sciedu Press, vol. 5(4), pages 192-192, November.
    • Handle: RePEc:jfr:afr111:v:5:y:2016:i:4:p:192
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    References listed on IDEAS

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    6. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165, Elsevier.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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