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Does cash flow affect investment? Evidence from the romanian capital market

Author

Listed:
  • Andriana Putintica

    (Babes-Bolyai University, Cluj-Napoca, Faculty of Economics and Business Administration)

  • Carmen Giorgiana Bonaci

    (Babes-Bolyai University, Cluj-Napoca, Faculty of Economics and Business Administration)

Abstract

Our paper addresses the relation between corporate investments and cash flow. While literature agrees upon the existence of a correlation between the two, its interpretation continues to generate intense debates. We use data from a sample of 125 Romanian listed companies for the 2005-2011 period. Using a fixed effects least squares model we document a positive significant association between investments and cash flow. The results show that a 1% cash flow fluctuation leads to a 0.27% alteration of the planned investments. We therefore add to the literature on a widely debated topic by bringing evidence in the case of Romanian listed companies.

Suggested Citation

  • Andriana Putintica & Carmen Giorgiana Bonaci, 2013. "Does cash flow affect investment? Evidence from the romanian capital market," International Journal of Entrepreneurial Knowledge, Center for International Scientific Research of VSO and VSPP, vol. 1(1), pages 53-60, December.
    • Handle: RePEc:jek:journl:v:1:y:2013:i:1:p:53-60
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    File URL: http://ijek.org/files/IJEK_1-2013v1/ijek_1-2013,v.1_putuntica,a.bonaci,c..pdf
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    References listed on IDEAS

    as
    1. Gilchrist, Simon & Himmelberg, Charles P., 1995. "Evidence on the role of cash flow for investment," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 541-572, December.
    2. Malcolm Baker & Jeremy C. Stein & Jeffrey Wurgler, 2003. "When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 969-1005.
    3. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, April.
    4. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    5. Fromm, Gary & Ciccolo, John, 1979. ""q" and the Theory of Investment," Journal of Finance, American Finance Association, vol. 34(2), pages 535-547, May.
    6. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Investments; cash flow; financial reporting; panel data; fixed effects;
    All these keywords.

    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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