Investment-Cash Flow Sensitivities Are Really Investment-Investment Sensitivities ∗

@inproceedings{Bushman2008InvestmentCashFS,
  title={Investment-Cash Flow Sensitivities Are Really Investment-Investment Sensitivities ∗},
  author={Robert M. Bushman and Kenan-Flagler},
  year={2008}
}
A large empirical literature in accounting, economics and finance studies the relation between corporate investment and internally generated cash flows to test for the existence and significance of financing constraints. In this paper, we argue that much of the extant literature confounds the notion of cash flow with accrual accounting net income, which by construction does not represent cash flow. We provide compelling evidence that the documented patterns in investment-cash flow sensitivities… CONTINUE READING

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