Investment cash flow sensitivity still exists among private European companies. New evidence from Western Europe

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en Hauru, Matias 2015-12-16T08:18:10Z 2015-12-16T08:18:10Z 2015
dc.description.abstract OBJECTIVES OF THE STUDY: Motivated by debates on investment-cash flow sensitivity, its relation to financial constraints and its documented decline globally, this study examines whether companies' capital expenditures are still sensitive to cash flows or whether the phenomena has disappeared and become economically insignificant as suggested by Chen and Chen (2012) among others. Furthermore, I examine whether there are differences in ICF sensitivity between companies more and less likely to be financially constrained by using several different measures as proxies for financial constraints. The paper contributes to existing literature by expanding the research to privately-owned companies compared to publicly listed companies in earlier studies. DATA AND METHODOLOGY: The sample for my tests uses annual data from 2005 to 2012 for European unlisted firms. To be consistent with previous literature, only firms from manufacturing industry are included. The sample companies have at least $1 million of total assets at least in one of the sample years. The companies are from so-called PIIGS countries or strongest euro zone economies, as I try to examine whether the strength of the economy and its' banking sector has contributed to the cash-flow dependency of investment. In the end, the sample consists of 10 336 firm-year observations from 1687 different companies. The empirical model follows Fazzari et al. (1988) as well as numerous other papers (see e.g. Ding et al. (2013) and Chen and Chen (2012)) Like earlier papers, I estimate all of the equations by using Generalized Method of Moments (GMM) approach with fixed effects model to control for time and company invariant effects. Lagged values of the regressors are used as instruments to control for the possible endogeneity of regressors. FINDINGS OF THE STUDY: Compatible to the recent findings in the literature, I find that ICF sensitivity has indeed become weaker compared to earlier results, but among privately-owned European companies, the ICF sensitivity is still existent and economically significant - especially among durable goods manufacturing companies. The ICF sensitivity also seems to correlate with key measures of financial constraints and the sensitivity appears to be stronger in PIIGS countries. en
dc.format.extent 57
dc.language.iso en en
dc.title Investment cash flow sensitivity still exists among private European companies. New evidence from Western Europe en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.contributor.department Department of Finance en
dc.subject.keyword Investment cash flow sensitivity
dc.subject.keyword financial constraints
dc.subject.keyword financial crisis
dc.subject.keyword external finance
dc.subject.keyword asset tangibility
dc.subject.keyword physical investment
dc.subject.keyword cash flow financing
dc.identifier.urn URN:NBN:fi:aalto-201512165834
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon investoinnit
dc.subject.helecon investment
dc.subject.helecon kassavirta
dc.subject.helecon cash flow
dc.ethesisid 14215 2015-12-04
dc.location P1 I

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