What drives investment–cash flow sensitivity around the World? An asset tangibility Perspective

Fariborz Moshirian, Vikram Nanda, Alexander Vadilyev and Bohui Zhang

Journal of Banking & Finance, 2017, vol. 77, issue C, 1-17

Abstract: Motivated by ongoing debates on investment–cash flow sensitivity (ICFS) and its documented decline and disappearance in the U.S., we investigate the determinants of ICFS. Using firm-level data across 41 countries for the 1993–2013 period, we document an important role of asset tangibility in explaining the patterns in ICFS. Asset tangibility affects ICFS through two channels: investment intensity and cash flow persistence. As the share of tangible capital, investment and cash flow persistence has fallen in developed economies, ICFS has declined. In contrast, as developing economies operate with more tangible capital, have higher investment rates and more persistent cash flows, their ICFS is more stable. The results support our explanation of ICFS as a reflection of capital (investment) intensity and income predictability, rather than a measure of financial constraints.

Keywords: Investment–cash flow sensitivity; Investment–cash flow–tangible capital sensitivity; Asset tangibility; Investment intensity; Cash flow persistence (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:77:y:2017:i:c:p:1-17

DOI: 10.1016/j.jbankfin.2016.12.012

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