Decreasing investment-cash flow sensitivity: Further UK evidence

Michael Machokoto, Umair Tanveer, Shamaila Ishaq and Geofry Areneke

Finance Research Letters, 2021, vol. 38, issue C

Abstract: Using publicly listed firms in the UK, we examine the time-series variation of investment-cash flow sensitivity after directly controlling for future growth opportunities in cash flow, which if overlooked, as in the literature, could bias inferences. We find that investment-cash flow sensitivity is disappearing over time, even for constrained firms during the global financial crisis when credit constraints were more significant or binding. Our results not only confirm the decline in investment-cash flow sensitivity that is not explained by factors so far identified in the literature but also its diminishing usefulness as a proxy of financial constraints.

Keywords: Financial constraints; Investment-cash flow sensitivity; Time variations (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319300844

DOI: 10.1016/j.frl.2019.101397

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