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The Nonmonotonic Investment–Cash Flow Sensitivity and Business Life Cycle: Evidence from An Emerging Market

Year: 2025

Type: article

Abstract: This article aims to investigate the non-linear correlation between investment and cash flow. Drawing on a sample of 669 Vietnamese publicly listed firms from 2010 to 2021, the study tests two hypotheses concerning the investment–cash flow relationship, employing a two-step system-GMM approach. The sensitivity of investment to cash flow is examined across different financial scenarios and business stages. The results demonstrate a U-shaped investment-cash flow relationship, which consistently holds across various firms’ financial positions and ownership structures. Interestingly, this pattern is absent under the influence of the COVID-19 pandemic. When considering the business life cycle, the results indicate that while companies in the introduction and expansion phases exhibit the inverted U-shaped sensitivity, those in the maturity and decline stages display a U-pattern. These outcomes enrich the existing corporate literature and offer significant practical insights for investors, firm managers, and policy-setting parties, particularly within the emerging market context.

Source: Asian Academy of Management Journal of Accounting and Finance

DOI: 10.21315/aamjaf2025.21.1.7

Authors: Thai Thi Hong An, Ha Le Hong Ngoc

Institution: University of Da Nang

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: diamond

Funder: Bộ Giáo dục và Ðào tạo