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Global cash flow sensitivities

Simon Döring, Wolfgang Drobetz, Malte Janzen and Iwan Meier

Finance Research Letters, 2018, vol. 25, issue C, 16-22

Abstract: We examine the role of a country's institutional framework for investment and financing activities. A country's financial structure, investor rights, and legal environment are important determinants of the relation between cash flow and firms’ investment and financing behavior. Firms from countries with a stronger institutional framework exhibit higher financing-cash flow sensitivities. These firms are more likely to substitute a cash flow shortfall with issuing equity. Conversely, investment-cash flow sensitivities are higher for firms in countries with a weaker institutional framework.

Keywords: Cash flow sensitivity; Financial development; Law and finance (search for similar items in EconPapers)
JEL-codes: G20 G31 G38 (search for similar items in EconPapers)
Date: 2018
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