How Sensitive Is Investment to Cash Flow When Financing Is Frictionless?
Year: 2003
Type: article
Abstract: ABSTRACT I analyze the sensitivity of a firm's investment to its own cash flow in the benchmark case where financing is frictionless. This sensitivity has been proposed as a measure of financing constraints in earlier studies. I find that the investment–cash flow sensitivities that obtain in the frictionless benchmark are very similar, both in magnitude and in patterns they exhibit, to those observed in the data. In particular, the sensitivity is higher for firms with high growth rates and low dividend payout ratios. Tobin's q is shown to be a more noisy measure of near‐term investment plans for these firms.
Source: The Journal of Finance
Author: Aydoḡan Alti
Institutions: Carnegie Mellon University, The University of Texas at Austin
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3124422916