How Sensitive Is Investment to Cash Flow When Financing Is Frictionless?

Aydoḡan Alti

Journal of Finance, 2003, vol. 58, issue 2, 707-722

Abstract: I analyze the sensitivity of a firm's investment to its own cash flow in the benchmark case where financing is frictionless. This sensitivity has been proposed as a measure of financing constraints in earlier studies. I find that the investment–cash flow sensitivities that obtain in the frictionless benchmark are very similar, both in magnitude and in patterns they exhibit, to those observed in the data. In particular, the sensitivity is higher for firms with high growth rates and low dividend payout ratios. Tobin's q is shown to be a more noisy measure of near‐term investment plans for these firms.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (265)

Downloads: (external link)
https://doi.org/10.1111/1540-6261.00542

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:58:y:2003:i:2:p:707-722

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().