Long-term investment sensitivity to cash flow and financial crisis

ABSTRACT

This study examined investment–cash flow sensitivity in unconstrained and constrained firms from 1980 to 2010 in a sample of Italian manufacturing firms. Investment sensitivity to cash flow decreased over time, and financially constrained firms showed little difference in the decline compared with unconstrained firms. Last, investment sensitivity to cash flow increased during the financial crisis of 2008.

KEYWORDS:

• Investment–cash flow sensitivity
• investment
• financial constraints
• financial crisis

JEL CLASSIFICATION:

• G30
• G31
• G32