search query: @author Kadapakkam, P-R. / total: 2
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| Author: | Kadapakkam, P-R. Kumar, P. C. Riddick, L. A. |
| Title: | The impact of cash flows and firm size on investment: The international evidence |
| Journal: | Journal of Banking and Finance
1998 : MAR, VOL. 22:3, p. 293-320 |
| Index terms: | INVESTMENTS CAPITAL OECD |
| Language: | eng |
| Abstract: | This paper examines the degree to which cash flow availability influences firm investment in six OECD countries. In particular, we are interested in the extent to which the reliance on internal funds is aflected by firm size, since there is general agreement that smaller firms have less access to external capital markets and, thus, should be more affected by the availability of internal funds. Earlier work has concluded that the documented positive relationship between cash flow and investment is evidence of the existence of financial constraints. First, all firms are examined, regardless of size, in each country, and it is found that the amount of corporate investment is affected by internal resources in all six countries; that is, internal financing affects firm investment. Then the analysis segmenting the sample is repeated using three measures of firm size. Contrary to our a priori expectations, it is found that the cash flow-investment sensitivity is generally highest in the large firm size group and smallest in the small firm size group. It is deduced that the explanations for these findings are grounded in managerial agency considerations, and in the greater flexibility enjoyed by large firms in timing their investments. Thus, it is concluded that the degree of sensitivity of a firm's investments to its cash flows cannot be interpreted as an accurate measure of its access to capital markets (as do Kaplan, S., Zingales, L., 1997. The Quarterly Journal of Economics 169--215), since small firms are known to have less access to external markets. |
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