A. Guariglia
Cash Flow, Investment, and Investment Opportunities: New Tests using UK Panel Data
Guariglia, A.; Carpenter, R.
Authors
R. Carpenter
Abstract
The interpretation of the correlation between cash flow and investment is controversial. Some argue that it is caused by financial constraints, others by the correlation between cash flow and investment opportunities that are not properly measured by Tobin’s Q. This paper uses UK firms’ contracted capital expenditure to capture information about opportunities available only to insiders and thus not included in Q. When this variable is added to investment regressions, the explanatory power of cash flow falls for large firms, but remains unchanged for small firms. This suggests that the significance of cash flow stems from its role in capturing the effects of credit frictions.
Citation
Guariglia, A., & Carpenter, R. (2008). Cash Flow, Investment, and Investment Opportunities: New Tests using UK Panel Data. Journal of Banking and Finance, 32(9), 1894-1906. https://doi.org/10.1016/j.jbankfin.2007.12.014
Journal Article Type | Article |
---|---|
Publication Date | Sep 1, 2008 |
Deposit Date | May 22, 2009 |
Publicly Available Date | Mar 28, 2024 |
Journal | Journal of Banking and Finance |
Print ISSN | 0378-4266 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Volume | 32 |
Issue | 9 |
Pages | 1894-1906 |
DOI | https://doi.org/10.1016/j.jbankfin.2007.12.014 |
Keywords | Investment, Tobin’s Q, Cash flow, Financial constraints. |
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