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The impact of capital market imperfections on investment-cash flow sensitivity

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  • Agca, Senay
  • Mozumdar, Abon

Abstract

We examine the investment-cash flow sensitivity of US manufacturing firms in relation to five factors associated with capital market imperfections - fund flows, institutional ownership, analyst following, bond ratings, and an index of antitakeover amendments. We find a steady decline in the estimated sensitivity over time. Furthermore, we find that investment-cash flow sensitivity decreases with increasing fund flows, institutional ownership, analyst following, antitakeover amendments and with the existence of a bond rating. The overall evidence suggests that investment-cash flow sensitivity decreases with factors that reduce capital market imperfections.

Suggested Citation

  • Agca, Senay & Mozumdar, Abon, 2008. "The impact of capital market imperfections on investment-cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 207-216, February.
    • Handle: RePEc:eee:jbfina:v:32:y:2008:i:2:p:207-216
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