The sensitivities between cash flow and investment financial constrained firms.

Abstract

The aim of this research is to examine the sensitivities of cash flow to investment when firms are financially constrained and unconstrained. Investment decisions of financial constrained firms depend on the availability of internal finance which has a cost advantage over new debt or equity finance while investment of the firms under financial unconstraint depend on investment demand without limitation to access the funds both internally and externally. In this study, we selected companies listed on the Stock Exchange of Thailand, using data from 2001 to 2013. The sample contains 205 companies from 3 business sectors which are Industrials, Property & Construction and Consumer Products. Our findings are consistent with the theoretical prediction on the sensitivity of investment-cash flow which indicates that the constrained firms have higher sensitivity of cash flow to investment than the unconstrained firms. KEY WORDS: CASH FLOW / INVESTMENT / CONSTRAINED / UNCONSTRAINED