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

• DOI: 10.2139/ssrn.711165
• Publication Date: 2021-11-17T04:05:20Z
• Authors: Paul Mizen; Philip Vermeulen
• Keywords: Investment

The excess sensitivity of investment to cash flow has been demonstrated in numerous studies. Recent research identified differences the degree across countries, which it ascribes nature lender-borrower relationship financial systems those countries. In this paper we offer new methods and results determine whether are associated with structural explanations such as system industrial composition, or due other firm-specific determinants size creditworthiness. Unlike previous able systematically control for competing our data from more than one country thereby isolate what drives relationship. We find that creditworthiness is main driving force sensitivity.