Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Knut Wicksell Centre for Financial Studies, Lund University Knut Wicksell Working Paper Series, Knut Wicksell Centre for Financial Studies, Lund University

No 2013/17:
A Wall of Cash: The Investment-Cash Flow Sensitivity When Capital Becomes Abundant

Håkan Jankensgård () and Niclas Andrén ()

Abstract: In the mid 2000s the oil and gas industry was hit by what might be best described as a ‘wall of cash’ as oil prices successively reached new record levels and access to external financing improved greatly. In this article we investigate what this sudden abundance of liquidity implied for the investment-cash flow relationship, the interpretation of which continues to generate controversy in the financing constraints-literature. For small and financially constrained firms the investment-cash flow sensitivity decreases in the abundance period (2005-2008), suggesting that these firms became less financially constrained in this period. For large and financially unconstrained firms, however, the investment-cash flow sensitivity increases over time, suggesting that this relationship is driven by agency problems related to free cash flow. Our analysis illustrates the importance of a research design that addresses both these competing explanations of the investment-cash flow relationship.

Keywords: Corporate investment; financing constraints; agency costs; investment-cash flow sensitivity; (follow links to similar papers)

JEL-Codes: G30; G32; (follow links to similar papers)

27 pages, October 9, 2013

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

kwc-wp-2013-17.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Frederik Lundtofte () or Niclas Andrén ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:luwick:2013_017 This page was generated on 2014-12-14 19:25:05