Investment, cash flow and uncertainty: evidence for the Netherlands
Using a slightly modified version of the Kaplan-Zingales (1997) model we show that it is likely that firms facing high uncertainty rely more on cash flow. Next we illustrate this result using an investment panel data model of Dutch listed firms. Using a threshold estimator we determine the critical level of stock price, sales, and employment uncertainty. Next we apply a GMM-estimator to correct for the endogeneity of the regressors. The empirical results confirm the notion that higher uncertainty intensifies the use of cash flow.
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