Corporate investment and cash flow sensitivity: what drives the relationship?
The excess sensitivity of investment to cash flow has been demonstrated in numerous studies. Recent research has identified differences in the degree of sensitivity across countries, which it ascribes to the nature of the lender-borrower relationship in the financial systems of those countries. In this paper we offer new methods and results to determine whether differences are associated with structural explanations such as the nature of the financial system and industrial composition, or due to other firm-specific determinants such as size or creditworthiness. Unlike previous research we are able to systematically control for competing explanations in our data from more than one country and thereby isolate what drives the relationship. We find that creditworthiness is the main driving force of cash flow sensitivity. JEL Classification: E22, D92
|Date of creation:||May 2005|
|Date of revision:|
|Contact details of provider:|| Postal: 60640 Frankfurt am Main, Germany|
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998.
"The Financial Accelerator in a Quantitative Business Cycle Framework,"
NBER Working Papers
6455, National Bureau of Economic Research, Inc.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- Barth, Marvin J III & Ramey, Valerie A, 2000.
"The Cost Channel of Monetary Transmissions,"
University of California at San Diego, Economics Working Paper Series
qt7rm5q9sk, Department of Economics, UC San Diego.
- Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
- Simon Gilchrist & Ben S. Bernanke & Mark Gertler, 1994.
"The financial accelerator and the flight to quality,"
Finance and Economics Discussion Series
94-18, Board of Governors of the Federal Reserve System (U.S.).
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1994. "The Financial Accelerator and the Flight to Quality," NBER Working Papers 4789, National Bureau of Economic Research, Inc.
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
- Ricardo J. Caballero, 1997.
NBER Working Papers
6264, National Bureau of Economic Research, Inc.
- Steve Bond & Jason Cummins, 2001.
"Noisy share prices and the Q model of investment,"
IFS Working Papers
W01/22, Institute for Fiscal Studies.
- Stephen Bond, 2000. "Noisy Share Prices and the Q Model of Investment," Econometric Society World Congress 2000 Contributed Papers 1320, Econometric Society.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-21, March.
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20050485. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)
If references are entirely missing, you can add them using this form.