Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210419 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 862
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
This paper studies whether the monotonicity condition of the investment-cash flow sensitivity is satisfied empirically. We show that if this condition holds, then the point of sample separation does not affect the monotonic relationship between the sensitivities of any two complementary classes of observations. Our test, based upon observable averages of the investment-cash flow sensitivity, rejects the monotonicity condition for any common metric of financing constraints we use. The testing procedure we propose reconciles the conflicting findings of the literature about the shape of the investment-cash flow sensitivity.
Subjects: 
Investment-cash flow sensitivity
Monotonicity condition
Sample separation
JEL: 
G30
G32
Document Type: 
Working Paper

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