Balance Sheet Theory During COVID-19: The Relationship Between Cash Flow and Investment in Polish Listed Companies

Marian Nehrebecki

Gospodarka Narodowa. The Polish Journal of Economics, 2022, issue 4, 74-88

Abstract: The aim of this paper is to verify the theory of the balance sheet channel among Polish listed companies, especially during the COVID-19 pandemic period. This objective was achieved by examining the relationship between cash flow and investment, based on an Emerging Markets Information Services (EMIS) database covering companies listed on the Warsaw Stock Exchange, including the bourse’s alternative NewConnect market, and using panel econometric models (pooled OLS, Fixed Effect Model, Random Effect Model and Panel VAR). It has been established that there are no grounds to reject the hypotheses that investment is positively associated with the cash flow of Polish listed companies and that the relationship between investment and cash flow is particularly strong for financially constrained companies. This means that there is evidence in support of the balance sheet channel theories. The hypothesis that the relationship between cash flow and investment is especially strong for financially constrained companies during the COVID-19‑induced recession has been rejected. The main novelty of the paper is that the balance sheet channel theory was verified for Polish listed companies, with a particular emphasis on the COVID-19 pandemic period.

Keywords: COVID-19; cash flow; corporate investment; financial constraints; pVAR (search for similar items in EconPapers)
JEL-codes: D90 E22 G31 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:gosnar:y:2022:i:4:p:74-88

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