Select Investment and Cash Flow: New Evidence

Select Investment and Cash Flow: New Evidence

We study the investment-cash flow sensitivities of U.S. firms from 1971-2009. Our tests extend the literature in several key ways and provide strong evidence that cash flow explains investment beyond its correlation with q. A dollar of current- and prior-year cash flow is associated with $0.32 of ad...

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Veröffentlicht in:Journal of financial and quantitative analysis 2016-08, Vol.51 (4), p.1135-1135
Hauptverfasser: Lewellen, Jonathan, Lewellen, Katharina
Format: Artikel
Sprache:eng
Schlagworte:
Cash flow
Correlation analysis
Investment policy
Measurement errors
Studies
United States
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Beschreibung
Zusammenfassung:We study the investment-cash flow sensitivities of U.S. firms from 1971-2009. Our tests extend the literature in several key ways and provide strong evidence that cash flow explains investment beyond its correlation with q. A dollar of current- and prior-year cash flow is associated with $0.32 of additional investment for firms that are the least likely to be constrained and $0.63 of additional investment for firms that are the most likely to be constrained, even after correcting for measurement error in q. Our results suggest that financing constraints and free-cash-flow problems are important for investment decisions.
ISSN:0022-1090