Niclas Andrén will present his paper “Do investment-cash flow sensitivities measure financial constraints or investment intensity?” (joint work with Håkan Jankensgård)
Abstract: Recent research shows that investment-cash flow sensitivities are primarily predicted by investment intensity, which marks a departure from the traditional view of these sensitivities as measures of financial constraints. We propose an alternative interpretation: investment intensity as a precondition for financial constraints to be binding. In this research, we show that for investment-intense firms, where funding requirements are large enough to be binding, those that have a higher cost wedge on external financing consistently display higher sensitivities. We conclude that investment-cash flow sensitivities do seem to capture financial constraints, but only conditional on a sufficiently high investment rate.