On the sensitivity of firms' investment to cash flow and uncertainty.

Christopher F. Baum, Mustafa Caglayan, Oleksandr Talavera

    Research output: Contribution to journalArticle

    41 Citations (Scopus)

    Abstract

    We investigate the analytical and empirical linkages between cash flow, uncertainty, and firms' capital investment behavior. Our empirical approach constructs measures of own- and market-specific uncertainty from firms' daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. Our results indicate that even in the presence of important firm-specific variables, uncertainty is an important determinant of firms' investment behavior. Depending on the measure of uncertainty used, investment may be stimulated or curtailed by the effects of uncertainty on its own or through its interactions on cash flow.
    Original languageEnglish
    Pages (from-to)286
    Number of pages1
    JournalOxford Economic Papers
    Volume62
    Issue number2
    DOIs
    Publication statusPublished - 2010

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