Cash flow sensitivity of investment: Evidence from the Polish listed companies

Marian Nehrebecki

Open Access

Cash flow sensitivity of investment: Evidence from the Polish listed companies

Marian Nehrebecki

| Oct 28, 2020

Central European Economic Journal

Volume 7 (2020): Issue 54 (January 2020)

About this article

Cite

Page range: 157 - 171

DOI: https://doi.org/10.2478/ceej-2020-0009

Keywords
investment, cash flow, ICFS, balance sheet channel, financial accelerator

© 2020 Marian Nehrebecki, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Structure of the analysed sample by business sector. Source: author's own work based on the EMIS database.

Structure of the analysed sample by the sizes of enterprises. Source: author's own work based on the EMIS database.

Definitions of the explained and explanatory variables used in the econometric model

Variable	Definition
Investment	$\frac{Purchase of property, plant, equipment and intangible {assets}_{t}}{Property, plant and {equipment}_{t - 1}}$ {{{\rm{Purchase}}\,{\rm{of}}\,{\rm{property,}}\,{\rm{plant,}}\,{\rm{equipment}}\,{\rm{and}}\,{\rm{intangible}}\,{\rm{asset}}{{\rm{s}}_t}} \over {{\rm{Property,}}\,{\rm{plant}}\,{\rm{and}}\,{\rm{equipmen}}{{\rm{t}}_{{\rm{t - 1}}}}}}
Tobin's Q	$\frac{Firm's market {value}_{t}}{Total {Assets}_{t}}$ {{{\rm{Firm's}}\,{\rm{market}}\,{\rm{valu}}{{\rm{e}}_t}} \over {{\rm{Total}}\,{\rm{Asset}}{{\rm{s}}_t}}}
Cash Flow	$\frac{Cash flow from operating {activities}_{t}}{Total {Assets}_{t - 1}}$ {{{\rm{Cash}}\,{\rm{flow}}\,{\rm{from}}\,{\rm{operating}}\,{\rm{activitie}}{{\rm{s}}_t}} \over {{\rm{Total}}\,{\rm{Asset}}{{\rm{s}}_{{\rm{t - 1}}}}}}
Business sector	${\begin{matrix} 1 - Construction \\ 2 - Trade \\ 3 - Other services \\ 4 - Manufacturing \end{matrix}$ \left\{ {\matrix{{1 - {\rm{Construction}}} \hfill \cr {2 - {\rm{Trade}}} \hfill \cr {3 - {\rm{Other}}\,{\rm{services}}} \hfill \cr {4 - {\rm{Manufacturing}}} \hfill \cr } } \right.
Size	${\begin{matrix} 0 - Small firms \\ 1 - Medium - sized firms \\ 2 - Large firms \end{matrix}$ \left\{ {\matrix{{0 - {\rm{Small}}\,{\rm{firms}}} \cr {1 - {\rm{Medium}} - {\rm{sized}}\,{\rm{firms}}} \cr {2 - {\rm{Large}}\,{\rm{firms}}} \cr } } \right.

Spearman correlations for all continuous variables considered in the econometric model

Variable	Investment	Tobin's Q	Cash flow	Investment	Tobin's Q	Cash flow
Variable	2008			2014
Investment	1			1
Tobin's Q	0.1065	1		0.0448	1
Cash Flow	0.1243	−0.0289	1	0.1445	−0.0258	1

Model for investment estimation results using the Ordinary Least Squares method with robust standard errors

Variable	Model 1 (for 2008)	Model 2 (for 2014)
Tobin's Q	0.1474*** (0.0519)	0.01488 (0.0411)
Cash Flow	1.1029*** (0.3592)	0.7517*** (0.2697)
Business sector (Manufacturing – base level)
Construction	0.1559** (0.0767)	−0.0438 (0.0631)
Trade	0.2669*** (0.0784)	0.0291 (0.0596)
Other services	0.2441*** (0.0746)	0.1099** (0.0493)
Size (Small firms - baselevel)
Medium-sized firms	−0.1617** (0.0823)	−0.1393*** (0.0508)
Large firms	−0.1817*** (0.0746)	−0.1646*** (0.0519)
Constant term	0.2701*** (0.0936)	0.3315*** (0.0550)
Number of observations	236	524
R²	0.2042	0.0771
Adj R²	0.1980	0.0645
F test for business sector	6.39 [0.0004]	2.54 [0.0554]
F test for size	3.00 [0.0519]	6.46 [0.0017]
F test for joint insignificance	9.29 [0.0000]	5.90 [0.0000]
Diagnostic tests	p-value
Diagnostic tests	Model 1	Model 2
RESET test	0.7948	0.0411
Jarque-Bera test	0.0000	0.0000
Chow test for size	0.6191	0.0000
Breusch-Pagan test	0.0005	0.0000
White test	0.0009	0.0001

Summary statistics of the variables considered in the econometric model

Variable	Mean	Lower quantile	Median	Upper quantile	Mean	Lower quantile	Median	Upper quantile
Variable	2008				2014
Investment	0.408	0.017	0.203	0.650	0.347	0.019	0.145	0.465
Tobin's Q	0.812	0.422	0.677	1.033	0.729	0.406	0.608	0.882
Cash Flow	0.075	0	0.050	0.128	0.066	0	0.036	0.112
Investment by business sector
Construction	0.405	0.089	0.259	0.579	0.242	0.019	0.095	0.228
Trade	0.420	0	0.331	0.743	0.316	0.018	0.122	0.393
Other services	0.499	0	0.214	1.159	0.439	0.006	0.183	0.767
Manufacturing	0.320	0.068	0.170	0.419	0.285	0.045	0.139	0.276
Investment by size
Small firms	0.438	0	0.110	1.041	0.421	0	0.151	0.826
Medium firms	0.400	0.064	0.210	0.627	0.269	0.061	0.159	0.276
Large firms	0.395	0.153	0.283	0.552	0.247	0.063	0.131	0.264

eISSN:: 2543-6821
Language:: English

Publication timeframe:: Volume Open
Journal Subjects:: Business and Economics, Political Economics, Economic Theory, Systems and Structures, Microeconomics, Macroecomics, Economic Policy

Journal RSS Feed

Cash flow sensitivity of investment: Evidence from the Polish listed companies

Published Online: Oct 28, 2020

Page range: 157 - 171

DOI: https://doi.org/10.2478/ceej-2020-0009

Keywords
investment, cash flow, ICFS, balance sheet channel, financial accelerator

© 2020 Marian Nehrebecki, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Graph 1

Graph 2

Definitions of the explained and explanatory variables used in the econometric model

Spearman correlations for all continuous variables considered in the econometric model

Model for investment estimation results using the Ordinary Least Squares method with robust standard errors

Summary statistics of the variables considered in the econometric model

Cash flow sensitivity of investment: Evidence from the Polish listed companies

Published Online: Oct 28, 2020

Page range: 157 - 171

DOI: https://doi.org/10.2478/ceej-2020-0009

Keywordsinvestment, cash flow, ICFS, balance sheet channel, financial accelerator

© 2020 Marian Nehrebecki, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Graph 1

Graph 2

Definitions of the explained and explanatory variables used in the econometric model

Spearman correlations for all continuous variables considered in the econometric model

Model for investment estimation results using the Ordinary Least Squares method with robust standard errors

Summary statistics of the variables considered in the econometric model

Keywords
investment, cash flow, ICFS, balance sheet channel, financial accelerator