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Corporate governance and investment

Klaus Gugler ()

International Journal of the Economics of Business, 2003, vol. 10, issue 3, 261-289

Abstract: This article contributes in at least three ways to the investment-cash flow literature. First, it finds that the corporate governance environment of a firm affects the relationship between investment and cash flow. Second, it allows for both asymmetric information and managerial discretion explanations for positive investment-cash flow coefficients, thereby overcoming most of the ambiguities in this interpretation. Finally, by using a GMM estimator most of the problems with traditional OLS models are avoided. It is found that family-controlled firms appear to suffer from cash constraints as evidenced by a positive and robust relationship of investment to cash flow. State-controlled firms also exhibit a positive and significant cash flow sensitivity, which we explain by managerial discretion.

Keywords: Corporate Governance; Cash Constraints; Managerial Discretion; Rates of Return (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1080/1357151032000126238

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Handle: RePEc:taf:ijecbs:v:10:y:2003:i:3:p:261-289