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Publication Global cash flow sensitivities

Type

Working Paper

Institution(s)

University of Hamburg, HEC Montreal

Year

2017

Author(s)

Simon Döring

Wolfgang Drobetz

Malte Janzen

Iwan Meier

Research Area

Corporate Finance

Keywords

Cash flow sensitivity, financial development, law and finance

Abstract

We examine the role of a country’s institutional framework for investment and financing activities. A country’s financial structure, investor rights, and legal environment are important determinants of the relation between cash flow and firms’ investment and financing behavior. Firms from countries with a strong institutional framework exhibit higher financing-cash flow sensitivities. These firms are more likely to substitute a cash flow shortfall with issuing equity. Conversely, investment-cash flow sensitivities are higher for firms in countries with a weaker institutional framework.

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