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The triple‐edged sword of sensitivity of sales, cash flows, and debt to investments: Venture survival and capital investments

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  • Pankaj C. Patel
  • Marcus T. Wolfe
  • Maria João Guedes

Abstract

Drawing on reliable financial performance data of 192,855 venture‐year observations, representing a total of 66,174 ventures with 8.13% of the ventures failing (5380 ventures), we find that neither sales‐investment sensitivity nor cash‐flow‐investment sensitivity is associated with venture survival. However, debt‐investment sensitivity lowers the hazard of failure. Sales‐investment sensitivity and debt‐investment sensitivity under munificence and dynamism lower the hazard of failure. However, cash‐flow‐investment sensitivity at high levels of dynamism or munificence does not influence the hazard of failure. The effect sizes are small but nonetheless meaningful. The findings have implications for ventures attempting to match performance and capital structure with investment.

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  • Pankaj C. Patel & Marcus T. Wolfe & Maria João Guedes, 2023. "The triple‐edged sword of sensitivity of sales, cash flows, and debt to investments: Venture survival and capital investments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 473-489, January.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:1:p:473-489
    DOI: 10.1002/mde.3694
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