The Sensitivity of Investment to Cash Flow : An Explanation Based on the Growth-Type-Aligned Financing Hierarchy

Research output: Conference PapersRGC 32 - Refereed conference paper (without host publication)peer-review

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Detail(s)

Original languageEnglish
Number of pages53
Publication statusPublished - 15 Dec 2016

Conference

Title29th Australasian Finance and Banking Conference
LocationShangri-La Hotel Sydney
PlaceAustralia
CitySydney
Period14 - 16 December 2016

Abstract

We find the investment-cash-flow-sensitivity (ICFS) decreases with a firm’s asymmetric informational imperfection about growth (AI), a variable highly persistent over time. Firms with distinctly initial AI have distinct future investment styles and financing patterns. Higher initial AI predicts an investment style with more R&D intensity and a financing pattern with more equity than debt. Types of asymmetric information (about growth vs. assets-in-place) affect external finance so that growth uncertainty appears to facilitate rather than suppress equity financing. These findings are consistent with a growth-type explanation for ICFS and do not support the proposition that informational imperfection generally imposes financial constraints.

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Citation Format(s)

The Sensitivity of Investment to Cash Flow: An Explanation Based on the Growth-Type-Aligned Financing Hierarchy. / WU, Xueping; Au Yeung, Chau Kin.
2016. Paper presented at 29th Australasian Finance and Banking Conference, Sydney, New South Wales, Australia.

Research output: Conference PapersRGC 32 - Refereed conference paper (without host publication)peer-review