The Cash Flow Sensitivity of Investment: A Switching Regression Approach Based on Korean Firm Data (in Korean)

Jaewoon Koo and Kyunghee Maeng ()
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Kyunghee Maeng: Department of Economics, Chonnam National University

Economic Analysis (Quarterly), 2011, vol. 17, issue 2, 56-89

Abstract: The sensitivity of investment with respect to cash flow is positive in imperfect financial markets. Using a switching regression model, cash flow sensitivity of investments in chaebol firms and large firms appears to be higher. Also, investments are found to be more responsive to cash flow during monetary contraction periods. These findings imply that monetary policy works through a credit channel. Furthermore, it appears that monetary policy exerts distributional effects as well as aggregate effects on that firms are unevenly affected by monetary changes.

Keywords: Cash flow sensitivity of investment; Switching regression; Credit channel; Financial Constraints; Chaebol (search for similar items in EconPapers)
JEL-codes: E31 G32 (search for similar items in EconPapers)
Date: 2011
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