Corporate Investment and Cash Flow Sensitivity: What Drives the Relationship?

Abstract We propose an explanation for why corporate investment used to be sensitive to cash flow and why the sensitivity declined over time. The sensitivity stems from the informational role of cash flow in inferring the productivity of tangible capital in the old economy. Over time, however, more new-economy firms enter the market. These firms have reduced tangible capital productivity and reduced cash-flow predictability, which drives the decline in the average investment–cash flow sensitivity. Theoretical and empirical analyses support this explanation.

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The Study on Relationship between Financing Constraints and Investment-Cash Flow Sensitivity in Chinese Listed Companies

Advanced Materials Research ◽

10.4028/www.scientific.net/amr.268-270.1844 ◽

2011 ◽

Vol 268-270 ◽

pp. 1844-1849

Author(s):

Chang Chun Li

Keyword(s):

Cash Flow ◽

Logistic Regression Model ◽

Listed Companies ◽

Financial Data ◽

Financing Constraints ◽

External Financing ◽

Flow Sensitivity ◽

Chinese Listed Companies ◽

Cash Flow Sensitivity ◽

The Relationship

This paper uses the financial data of all Chinese listed companies to construct two indexes that reflect the degree of external financing constraints faced by firms, using logistic regression model and multiple discriminate analyses respectively. Second, the author examines the relationship between financing constraints and the investment-cash flow sensitivity using OLS regressions. This paper provides evidence that the relationship between financing constraints and investment-cash flow sensitivity is monotonic, which is consistent with the findings of FHP(1988).

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The Indirect Impact of Busy Directors on the Relationship of Family Structure and Cash Flow Sensitivity of Cash (Empirical Research in Indonesia’s Manufacturing Sector 2013-2017)

Jurnal Manajemen Bisnis ◽

10.18196/mb.v12i1.9344 ◽

2021 ◽

Vol 12 (1) ◽

pp. 111-114

Author(s):

Wahyu Santoso ◽

Cynthia Afriani Utama

Keyword(s):

Family Structure ◽

Cash Flow ◽

Manufacturing Sector ◽

Manufacturing Companies ◽

Flow Sensitivity ◽

Indirect Impact ◽

Cash Flow Sensitivity ◽

Relationship Of ◽

The Impact ◽

The Relationship

Research aims: This research aimed to determine the impact of family structure on the cash flow sensitivity of cash (CFSC) in the manufacturing sector. It also investigates the indirect impact of busy directors as a moderating effect.Design/Methodology/Approach: Based on a sample of Indonesia’s manufacturing companies from 2013 to 2017, the researcher uses GLS regression models on this panel data calculated with robustness fit test at the firm’s level.Research findings: It indicated that family structure has a impact positively on cash flow sensitivity of cash and statistically significant. Meanwhile, the indirect impact of busy directors found to have a impact negatively and weakened on the relationship of family structure and CFSC, it also indiciated that quality of busy directors is an tool of corporate governance that is effectively to monitor of every family firm’s decisions.Theoretical contribution: This article enriches previous literature by justifying the impact of busy directors on the relation between every each of family’s firm decision and CFSC. Furthermore, it showed us a metric for agency problems that is the sensitivity of cash to corporate cash flows.Implication policy: Based on POJK regulations, the context of busy directors in this research refers to the roles and duties of the Board of Commissioners (BOC) which concurrently hold positions for other public companies.Research Limitation/Implication: The implications suggest that almost most of Indonesian family corporation are tend to expropriate minority by extracting rents through coporate cash flow sensitivity of cash behavior.

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