Investment – Cash Flow Sensitivity in Emerging Countries

Abstract

This study examines investment-cash flow sensitivity in emerging countries. Our sample comprises non-financial firms from 13 emerging countries from 2000 to 2020. After controlling for the measurement error in q, our study shows that the investment of firms from emerging countries is significantly related to cash flow. Moreover, financially constrained firms to exhibit higher investment-cash flow sensitivities than their unconstrained counterparts. This result implies that investment-cash flow sensitivity is evidence of the financing constraint firms in emerging countries face when operating in imperfect financial markets.