Investment-cash flow sensitivity measures investment thirst, but not financial constraint

Deng, Kebin, Ding, Zhong, Zhu, Yushu and Zhou, Qing (2015) Investment-cash flow sensitivity measures investment thirst, but not financial constraint. Accounting and Finance, . doi:10.1111/acfi.12133

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Author Deng, Kebin
Ding, Zhong
Zhu, Yushu
Zhou, Qing
Title Investment-cash flow sensitivity measures investment thirst, but not financial constraint
Journal name Accounting and Finance   Check publisher's open access policy
ISSN 0810-5391
1467-629X
Publication date 2015
Sub-type Article (original research)
DOI 10.1111/acfi.12133
Total pages 33
Place of publication Richmond, VIC Australia
Publisher Blackwell Publishing
Collection year 2016
Language eng
Formatted abstract
Literature streams disagree about the capacity of investment–cash flowsensitivity (ICFS) to measure both investment thirst and financial constraint. We argue that ICFS measures the former but not the latter. Therefore, we use Fazzari et al.’s study (1988) to develop a model to test the relationship betweenICFS an d financial constraint, but extend that model using Kornai (1979) toinclude investment thirst. We demonstrate: because the ICFS–financialconstraint relation ship varies, ICFS cannot measure financial constraint.Conversely, using a natural experiment of China’s Four Trillion Stimulus policy, we show ICFS significantly and positively correlates with investment thirst after controlling for financial constraint.
Keyword Investment cash flow sensitivity
Financial constraint
Investment thirst
Overinvestment
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2016 Collection
UQ Business School Publications
 
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Created: Tue, 28 Apr 2015, 10:14:10 EST by Karen Morgan on behalf of UQ Business School