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Corporate governance and investment

  • Klaus Gugler

This article contributes in at least three ways to the investment-cash flow literature. First, it finds that the corporate governance environment of a firm affects the relationship between investment and cash flow. Second, it allows for both asymmetric information and managerial discretion explanations for positive investment-cash flow coefficients, thereby overcoming most of the ambiguities in this interpretation. Finally, by using a GMM estimator most of the problems with traditional OLS models are avoided. It is found that family-controlled firms appear to suffer from cash constraints as evidenced by a positive and robust relationship of investment to cash flow. State-controlled firms also exhibit a positive and significant cash flow sensitivity, which we explain by managerial discretion.

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File URL: http://www.tandfonline.com/10.1080/1357151032000126238
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Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 10 (2003)
Issue (Month): 3 ()
Pages: 261-289

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Handle: RePEc:taf:ijecbs:v:10:y:2003:i:3:p:261-289
DOI: 10.1080/1357151032000126238
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