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Organizational Capital and Investment-Cash Flow Sensitivity: The Effect of Management Quality Practices

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  • Najah Attig
  • Sean Cleary

Abstract

type="main"> This paper examines the influence of organizational capital, as evident in management quality practices, on the response of firm investment to internal cash flows. We provide novel and strong evidence that investment sensitivity to internal cash flows decreases in the presence of superior management practices. We also find that superior management practices reduce the firm's financing frictions, evident in lower capital constraints. Our results are robust to numerous tests. Overall, our findings suggest that intangible organizational capital is important for investment decisions and that superior management practices contribute to value-maximizing behavior.

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  • Najah Attig & Sean Cleary, 2014. "Organizational Capital and Investment-Cash Flow Sensitivity: The Effect of Management Quality Practices," Financial Management, Financial Management Association International, vol. 43(3), pages 473-504, September.
    • Handle: RePEc:bla:finmgt:v:43:y:2014:i:3:p:473-504
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    3. Chen, Yangyang & Podolski, Edward J. & Rhee, S. Ghon & Veeraraghavan, Madhu, 2017. "Do progressive social norms affect economic outcomes? Evidence from corporate takeovers," Journal of Empirical Finance, Elsevier, vol. 41(C), pages 76-95.
    4. Francis, Bill & Mani, Suresh Babu & Sharma, Zenu & Wu, Qiang, 2021. "The impact of organization capital on firm innovation," Journal of Financial Stability, Elsevier, vol. 53(C).
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    6. Najah Attig & Sean Cleary, 2015. "Managerial Practices and Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 131(1), pages 121-136, September.
    7. Chen, Yangyang & Podolski, Edward J. & Veeraraghavan, Madhu, 2015. "Does managerial ability facilitate corporate innovative success?," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 313-326.
    8. Serin Choi & Seoki Lee & Kyuwan Choi & Kyung-A Sun, 2018. "Investment–cash flow sensitivities of restaurant firms," Tourism Economics, , vol. 24(5), pages 560-575, August.
    9. Kim, Hyun-Dong & Park, Kwangwoo & Song, Kyojik Roy, 2021. "Organization capital and analysts’ forecasts," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 762-778.
    10. Provaty, Sagira Sultana & Hasan, Mostafa Monzur & Luo, Le, 2024. "Organization capital and GHG emissions," Energy Economics, Elsevier, vol. 131(C).
    11. Yuxiao Qu & Adrian (Wai Kong) Cheung, 2023. "Organization capital and green innovation: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 3043-3062, November.
    12. Panta, Humnath & Narayanasamy, Arun & Panta, Ayush, 2023. "Organizational capital and credit ratings," Finance Research Letters, Elsevier, vol. 57(C).
    13. Christof Beuselinck & Luc Desrousseaux, 2024. "Hedge fund activism and corporate intangible capital investments," Review of Quantitative Finance and Accounting, Springer, vol. 63(1), pages 37-61, July.

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