Investment Cash Flow Sensitivity and Factors Affecting Firm s Investment Decisions

Transcription

1 International Review of Business Research Papers Vol. 10. No. 2. September 2014 Issue. Pp Investment Cash Flow Sensitivity and Factors Affecting Firm s Investment Decisions Ng Huey Chyi* and Kam Yoke Tien** Corporate financial structure and financing resources are very important for a firm in their investment decisions and value enhancement. Firms may seek for the cheapest financing resources while maximizing their return from investment. By using panel data analysis, this paper demonstrated the investment-cash flow sensitivity and the others factors affecting the firm s investment decisions. Result shows that there is significant negative investment-cash flow sensitivity. This implied that firms underinvest due to information asymmetry. This study also found others factors such as the former year s firm s tangibility, size, dividend, investment opportunity as well as debt level can significantly affect the firm s investment decisions. Depreciation and financial constraint were found no impact on the firm s investment decisions. These findings have significant implications for firm s value enhancement in financing and investment decisions. JEL Codes: G32, G33, and G35 1. Introduction The interrelationship between financing and investment decisions is the tenable central issue in corporate finance. Firm s investment decisions can be affected by financing choices due to various costs such as taxes and issuance costs associated with equity and debt. It will then alienate the cost of internal and external funds, thus changes the managers motive to take up different types of investment projects (Lewellen 2011). According to Almeida et al., (2004), two important research areas in corporate finance, (1) impact of financial constraints on firm; (2) financial management performance. They claimed that these two issues are fundamentally linked although being studied separately in the previous literature. Firm which announced a liquid balance sheet would have an advantage of undertaking valuable projects whenever there is any opportunity. The importance of balance sheet liquidity is influenced by the firm s flexibility of access to the external capital market. For instance, firm that faces financial frictions would set liquidity management as primary issue their corporate policy. In contrast, firm that has unrestricted access to external capital market (financial unconstraint) would then have no need to maintain corporate liquidity to safeguard future investment opportunities. Furthermore, Fazzari et al., (1988) proposed that firm s investment spending decision will be different based on the availability of internal funds. This is because there firms are no longer purely assessing the project positive net present value (NPV) when firm faces financial constraints. Firm s need to maintain the best level of capital structure and invest in positive NPV investment activity in order to maximise firm s value. Although the external financing *Ng Huey Chyi, Taylor s Business School, Taylor s University, Malaysia. hueychyi.ng@taylors.edu.my and ngchyi@hotmail.com **Kam Yoke Tien, Taylor s Business School, Taylor s University, Malaysia.

2 resources can be easily assess, high financing cost will always come along with the resources. Firms firm s cash flow volatility and financial status seems to be playing an important role in the firm s investment decisions. According to Lewellen (2011), the investment sensitivity to internally generated cash flow has received precise attention. He claimed that there are three reasons that drive a firm s interest in investing for more when cash flow is high. First is free cash flow hypothesis where manager overspending available internal funds; second is financing constraints where internal funds are less costly than external funds; and third is Q theory where cash flow interacts with investment opportunities. Indeed, there are large empirical literature found that cash flow availability and companies investment poses strong co-relationship. However, in Modigliani & Miller (1958) findings of perfect capital market, firm investment decision is independent from the financial factors which include internal liquidity, debt leverage and dividend payments. Arguments arise in various literatures to which research findings were more superior than the others. However, these results may change as time changes. Seungjin and Jiaping (2007) provided evidence on the significant investment and cash flow sensitivity in the constraint firms but not in the unconstraint firms. According to Liu (2013), the investment-cash flow sensitivity is inconsistent but progressing. Most of the researches were done in developing counties and limited literature about the developing countries. The capital market imperfection on private investment in developing countries was now reforms and the market liberalisation leads increasing cash flow to the country. The previous literature may not apply to this market liberalisation condition. Due to the importance of cash flow in firm s investment decisions and value maximization, this paper would like to re-examine the investmentcash flow sensitivity in Malaysia s Construction and Material Sector. Result from previous literatures generally focuses on the direct relation between investment and the others factors. Most studies had overlooked a crucial part where investment decisions of the firm can be probably slow implementation of investment decisions and also reaction to the study factors. Thus, some lagged independent variables were used here. The use of internal cash flow availability is proven with a significant impact on the company s investment decision. Moreover, firm s former year asset tangibility, leverage level, dividend payout, firm size and growth opportunities was found to have significantly impact on the current year investment decision. The negative relationship between investment with cash flow and growth opportunity implied that firms are currently underinvest. Tangibility increases firm s ability in obtaining new external fund for investment purposes while dividend payout will reduce the investment activities. The Malaysia s Construction and Material Sector is in massive growth for the past few years. The result of this study could contribute to both practical and theoretical aspects. This study is useful as guidance for the company within the same sector to support their capital budgeting process and reducing the bankruptcy cost. By considering this internal fund which may have a significant impact on the investment decision, the company can make successful investment that generates favourable profits for the company future expansion. A better understanding of company internal operation could lead to greater sustainability and value enhancement of a company in order to stabilize its leading position among competitors. Moreover, the result can help in the development of the Malaysia s Construction and Material Sector as well as a guideline for the others developing countries. This study was believed to provide great contribution to the developing countries as well as literature. 104

3 This paper is organized as follows: Section two discusses the theoretical background on the investment-cash flow sensitivity and factors affecting firm s investment. Section three discusses on the data and methodology used and followed by section four which presents the analysis and discussion on the empirical results. Finally, the last section discusses about the conclusion of this study. 2. Literature Review 2.1 Firm s Investment-Cash Flow Sensitivity In an imperfection capital market, cash flow has an impact to investments based on the fact that raising internal fund is cheaper than external financing due to the asymmetric information (Myers, 1984). According to Fazzari et al., (1988), investment may depend on internal financial factors while external and internal capital is not perfect substitute. He illustrated that internal cash flow can affect higher investment spending when internal funds have cost advantage over other financing approach such as debt financing and equity financing. Thus, most firms tend to hold sufficient cash and avoid raising external fund in financing the future investment opportunity. Due to the cheaper internal financing method, it is believed that the higher the cash flow causes higher growth of investments (Iuliana, 2008). According Cleary et al., (2007), when the firm s internal funds are not sufficient to finance any net present value investment project, new financing cost incurred. Thus, firms with little cash flow in the business tend to have lower investment activities due to the high external financing cost. Various researches had studied on the use of internal and external funds for firm s investment (Hoshi et al., 1991; Schaller, 1993, Gilchrist and Himmelberg, 1995). These studies proved that firm s investment is strongly depending on the firm cash flow especially in a financially constraint firms. Fazzari et al., (1988) claimed that investment should be correlated with cash flow even in perfect capital market because cash flow might act as a key indicator for the firm future profitability. Besides that, Kadapakkam et al., (1998) argued that the cash flow should be used as a relevant variable and highly correlated with investment equation rather than stock of cash because firm might use up excess cash flow for investment purposes rather than building up stock of cash. However, Greenwald, et al., (1984) noted that there are variety of reasons that causes firm s intention to maintain certain capital related ratio to cash on the balance sheet hence stock of cash might increase together with the increase in investment. This was supported by Francis et al., (2013) as they found lower dependencies on the firm s cash flows due to the better corporate management. Due to agency problem, managers may tend to overinvest to maximize their own benefits. According to Ameer (2014) overinvestment can be explained by the positive significant investment-cash flow relationship. On the other hand, a negative relation between firm s investment and cash flow showed the underinvestment problem due to information asymmetry problem (Myers, 1984). When information asymmetry occurs between firms and the capital markets, firms have to give up some positive NPV investment due. 2.2 Financial Constraints and Firm s Investment Decisions Modigliani & Miller (1958) showed that firm s investment decisions are independent form financial considerations in the perfect capital market. In the perfect capital market, external funds can perfectly substitute the firm s internal funds and thus firms can invest 105

4 without any restrictions. However, external funds no longer a perfect substitute for internal funds and firms may face financial restrictions on their investment decisions. Fazzari, et al., (1988) studied on the association between the firm s investment sensitivity to the internal funds together with financial constraint. They classified the firms according to their level of financial constraint based on firm size, dividend payouts and capital structure. Results showed that financial constraint firms have the highest sensitivities to cash flow. Numerous of later studies have followed the identical methodology of research including Chirinko & Schaller (1995), Hubbard et al., (1995) and lastly summarized by Hubbard (1998). Seungjin & Jiaping (2007) found this significant investment and cash flow sensitivity in the constraint firms but not in the unconstraint firms. Conversely, Kaplan & Zingales (1997) classified the firms into three levels of constraints which are financially constrained, possibly financially constrained and not financially constrained. By adopting this new approach they found that firms with the lowest investment-cash flow sensitivity are financially constrained firms. Cleary s (1999) studied on a larger dataset had also supported Kaplan & Zingales (1997). Furthermore, Mizen & Vermeulen (2005) suggested that firm s cash flow might be able to forecast the firm s profitability or sales in future which will affect the interpretation of cash flow sensitivity. 2.3 Others Factors Affecting Firm s Investment Decisions DeAngelo & Masulis (1980) showed that the leverage-irrelevance proposition of Miller (1977) can be overturned by an asymmetric corporate tax code with non-debt tax shields such as depreciation deduction and investment tax credit. The proposition II supported that investment in the individual firm level is encouraged by a more liberal depreciation schedules. This result increases the optimal level of investment-related tax shields with the increment in production and a market value for the firm. According to a research done by Summers (1987), the prospective of depreciation tax shields are more valuable than other prospective sources of cash flow because they are close to zero risk. Besides that, the present value of depreciation deductions after discounted by appropriate discount rate can be used as a measure in assessing the value of potential investment projects. However, depreciation deductions create no benefit for firms with net losses in their income statement which is non-taxable. Hence, depreciation deductions are not a crucial factor for most large firms (Auerbach & Poterba, 1987). In general, Summers (1987) concludes that depreciation tax shields can represent as an important riskless asset for the firm in suggesting the patterns of investment as long as it is discounted with an appropriate discount rates. In general context, small firms are expected to have more difficulty in accessing the external funding sources because the fund manager has less information about their creditworthiness and thus charged a highest cost of funding. Therefore, smaller firms are considered more sensitive to the financial factors variation as compared to larger firms (Iuliana, 2008). According to Marina & Huey Chyi (2012a), larger firms are found to be able to possess the ability in adjusting or delaying their investment project when experiencing any financial constraints. Raff & Ryan (2008) found that parent-firm size has no influence on the firm s initial stage investment decision. But only later, firm size is found to be an important contributing factor which has significant influence in the third stage of investment which implies that large firms generally take up more investment projects than smaller firms. This reveals that the determining factor of investment 106

5 decisions change across the investment stages. However, finding of Blomstrom & Lipsey (1991) claimed that firm s investment is not affected by firm size. The investment of firm with high leverage is assumed to be more sensitive to firm s cash flow than firm with lower debt level. For firms with low cash flow or cash reserve do not have easy access to external capital markets. The diminishing cash flow the firm is forced to diminish the investments as well in order to meet the debt obligations. Hence, a higher level of leverage contributes to the higher level of investment sensitivity (Iuliana, 2008). Cost of accessing external financial resources play an important role in the firms leverage decisions. When the firm s external financing cost is too high, firms will rather sacrifice the investment opportunity (Faulkender et al., 2012). According to Marina & Huey Chyi (2012b), there is significant positive relationship between firm s investment and firm s leverage level especially for smaller firms. This is due to the limited internal cash flow and high external financing cost for smaller firms. This showed that firm s value enhancement is depending on the firm s debt level (Zuraidah et al., 2012; Islam et al., 2013). According to Almeida & Campello (2007) and Ameer (2014), tangible assets tolerate more funds from external resources because such assets reduce creditors default risk. Investment cash flow sensitivity is shown decreasing in the assets tangibility of constrained firms. Firm with high asset tangibility may become unconstrained since the credit status of firm can be affected by the asset tangibility itself. This argument by Almeida & Campello (2007) indicated a nonmonotonic effect of tangibility on cash flow sensitivities where the investment-cash flow sensitivity increases with asset tangibility. However, this effect diminished at higher levels of tangibility. Net profit distribution decisions involve predicting the total amount of money needed to payout as dividend to shareholders as well as for the purpose of financing investment activities. The financing investment action is a kind of reinvestment into the firm which could bring up the firm s growth and value. The dividend payouts are able to attract new investors. Since both of the net profit allocation purposes would generate essential benefits to the firm, there is often existence of dilemma between the use for reinvestment or dividend payout ratio. Iuliana (2008) found in limited cash flow firm, the firm s cash flow derived a negative relationship between dividend payment and investment. Tobin s Q is a common measurement for firm s investment opportunity. Abel & Eberly (2010) and Gomes (2001) showed that optimal investment is sensitive to Tobin s Q and cash flow in his quantitative model regardless the presence of external finance cost. Marina & Huey Chyi (2012b) supported Tobin s Q has a significant positive relationship with firm s investment. This showed that firm is taking the opportunity and maximizing the firm s value. However, in Ammer s (2014) study, there was significant negative relationship found between investment and Tobin s Q in some large firms due to underinvestment problem. Most studies on this issue used various exogenous and endogenous in their models. Most of them had concentrated on the current year firm s level characteristics but overlook the impact of previous year firm s level factors on the investment decision. Some contradicted results found in the previous research and these created the interest of investigation on this issue again and again in this century. Yet, there are limited research done in the developing countries. In particular, this study would like to include 107

6 the factors that have been used in the previous studies of various researchers as the focus of study and re-examine the past or current year firm s level factors on the firm s investment decision. 3. Research Methodology This paper is to study on the firm s investment-cash flow sensitivity and the others factors affecting the firm s investment decision. This study focuses on the Construction and Material Companies (categorised by Datastream) listed in Malaysian Bourse. Out of 105 companies listed in this sector, only 58 companies were selected and 47 companies were excluded because those firms have less than 14 years of consecutive financial data from year 2000 to year The unselected companies only listed in the Malaysian Bourse after year This data consists of unbalanced panel and provided a total of 499 observations. The financial data was obtained from Thomson Reuters Datastream Professional and EViews was used to run the related test. The explanatory variables are cash flow, fixed asset, total depreciation, total debt, total assets, dividend payout ratio, Tobin s Q, and dummy of dividend payout whereas the dependent variable is the capital expenditure as a proxy of firm s investment decisions. Table 1: List of variables and measurements ariable Description Measurement CAPX Capital Expenditure Capital Expenditure = Capital expenditures sale of PP&E CF Cash Flow Cash Flow = Firm s after-tax profits + depreciation FA Fixed assets Fixed Asset = Total Assets - Current Assets TA Total assets Net assets = Debt + Equity Q Tobin s Q Q =(market value of firm + firm total debt)/book value of capital stock DEBT Total debt Total Debt = Short-term + Long-term debt DIV Dividends payout ratio Payout ratio = Dividends/ Operating income DEPR Total Depreciation Depreciation= Asset's total cost - the asset's expected salvage value FCONS Dummy of Dividend Payout Firm has made cash dividend in the year = 1 Firm has not made cash dividend in the year = 0 Table 1 shows the definition and formula for each of the variables in details. The measurements of the variables in this research are taken from the research papers done by Kaplan & Zingales (1997), Hubbard (1998), Carpenter & Guariglia (2003) and Ameer (2014) as a standard measurement. The dependent variable, total investment is proxy by the firm s capital expenditure on the purchase of fixed assets. Cash flow indicates the liquidity of the firm where an increase in cash flow will increase the liquidity of the company; fixed asset indicates the tangibility of firm; while total asset represent the firm size. The investment and growth opportunity is proxy by Tobin s Q. Total debt and dividend payout ratio proxy the firm s debt level and dividend payment. Whereas total depreciation proxy the non-debt tax shield of the firm in which the amount of depreciation will have an impact on the amount of taxable income that the company has to pay to the government. Following the approach by Almeida & Campello (2007), firm s paying dividend will be classify as unconstraint firm with a dummy 1 and dummy 2 for non-dividend paying firm. 108

7 The following panel regression model is used: (CAPX/TA) it = β 0 + β 1 (CF/TA) it + β 2 (DEPR/TA) it-1 + β 3 DIV it-1 + β 4 FCONS it + β 5 (FA/TA) it-1 + β 6 Q it-1 + β 7 (DEBT/TA) it-1 + β 8 Log TA it + ε it Where β 0 represent the intercept and ε it represent the error term. The subscript i indexes firms and t represent time where t in this case is the time period from year 2001 to This model was modified from Ameer s (2014) investment model. His model does not include any lagged year variables. This study also added depreciation, dividend and financial status into the model. Moreover, selected variables such as depreciation, dividend, fixed assets, Tobin s Q, and total debt were used here as lagged one year variable. This is because it was believed that the lagged year data could affect the current year investment decisions. Capital expenditure is used to measure the firm s investment decision and logarithm of the total asset is used to measure the firm s size. 4. Analysis and Discussion Table 2 reports the summary of variables descriptive statistics of the sample companies using data from year 2000 to Outliers were adjusted by winsorising at 5%. Tobin s Q and total asset has the highest volatility as the sample companies used here are the combination of large and small firms. The same goes to dividend payment and total debt. Table 3 shows the correlation among all the variables used. There is no multicollinearity between the variables here as the correlations are less than 0.9. The lagged one year dividend and dummy variable yields the highest correlation at Thus, all the variables can be used and proceed to the panel data analysis. Table 2: Descriptive statistic Mean Median Maximum Minimum Std. Dev. Observations CAPX CF DEPR DIV FCONS FA Q DEBT LOGTA This table reports the descriptive statistic of the variables used in this study. CAPX denotes the capital expenditure; CF denotes the firm s cash flow; DEPR is the total depreciation; DIV denotes the dividend payout ratio. FCONS is the dummy variable of pay and non-pay dividend companies; FA denotes the total fixed assets, Q denotes the Tobin s Q. DEBT proxies for the total debt and LOGTA represents the logarithm of total assets. 109

8 Table 3: Correlation Matrix of Variables CAPX CF DEPR t-1 DIV t-1 FCONS FA t-1 Q t-1 DEBT t-1 CAPX CF DEPR t DIV t FCONS FA t Q t DEBT t LOG(TA) This table reports the correlation of the variables used in this study. CAPX denotes the capital expenditure; CF denotes firm s cash flow; DEPR t-1 is the lagged one year total depreciation; DIV t-1 denotes the lagged one year dividend payout ratio. FCONS is the dummy variable of pay and non-pay dividend companies; FA t-1 denotes the previous year total fixed assets; Q t-1 denotes the lagged one year Tobin s Q. DEBT t-1 proxies for the last year total debt and LOG(TA) represents the log of total assets. Table 4 reports the panel least squares analysis without any effect; company specific fixed and random effect. Hausman test was conducted and obtained a p-value of (p < 0.05). Thus rejected the null hypothesis and fixed effects model is selected in this study. As in table 4, R 2 presented 40.52% of the firm total investment can be explained by the explanatory variables in this fixed effect panel model. The correction of standard errors only has minor differences compare to pre-adjustment. According to Freedman (2006), if the model use to fit the data looks like the process of generating data; hance, robust standard errors are not required. Thus, we are using the original standard errors in this study. Durbin-Watson statistic with a value of 2.05 > 2 indicates there is minor negative or no autocorrelation with the error terms. The investment-cash flow sensitivity was found to have significant negative relationship. The firm s investment opportunity also found to have a low negative coefficient with firm s investment. This indicated that high cash flow firms have lower investment. These findings supported Ameer s (2014) argument where firms are in the tendency of underinvestment due to information asymmetry theory by Myers (1984). Larger firms tend to have higher investment activities. However, we found significant negative relationship between firm s size and investment decisions which supported Raff & Ryan (2008) findings. Firms are usually underinvestment when firm s sizes are just in a moderate size although with high growth rate. Higher firm s tangibility could help firms in obtaining external funds due to their credit worthiness. We found the evidence of significant positive relationship of tangibility in the previous year with investment activities in the current year. This finding is consistent with the past literature by Almeida & Campello (2007) and Ameer (2014). Last year s depreciation was found no significant impact on the firm s investment. The immaterial amount of tax shield benefit can be a reason of no impact on the investment decision. Moreover, this in line with Auerbach & Poterba (1987) where depreciation deductions are not an important factors in investment decisions. The lagged year financial constraint and non-constraint status was found no significant impact as well. This result differs from some of the past literature but supported Modigliani & Miller (1958) argument on perfect capital market. The finding here could shows that firms can easily raise new external fund at lower cost as long as the firms has high tangible assets. 110

9 Table 4 Panel Least Squares Analysis Panel I Panel II Panel III Variables Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic CONST CF *** *** *** DEPR t DIV t ** ** FCONS FA t ** *** ** Q t * DEBT t *** *** *** LOG(TA) ** *** ** R Adjusted R Std. Error P-value Durbin-Watson Panel I is panel least squares without any effect; Panel II is panel with cross section fixed effect; and Panel III is panel with random effect. The estimated panel model is defined as follow: (CAPX/TA) it = β 0 + β 1 (CF/TA) it + β 2 (DEPR/TA) it-1 + β 3 DIV it-1 + β 4 FCONS it + β 5 (FA/TA) it-1 + β 6 Q it-1 + β 7 (DEBT/TA) it-1 + β 8 Log TA it + ε it For a firm i at time t, CAPX denotes the company s investment as the dependent variable in this model. CF denotes firm s cash flow; DEPR t-1 is the lagged one year total depreciation; DIV t-1 denotes the lagged one year dividend payout ratio. FCONS is the dummy variable of pay and non-pay dividend companies; FA t-1 denotes the previous year total fixed assets; Q t-1 denotes the lagged one year Tobin s Q. DEBT t-1 proxies for the last year total debt and LOG(TA) represents the log of total assets. * Significant at 0.10 level ** Significant at 0.05 level *** Significant at 0.01 level Investment decisions are negatively associated with former year dividend payment. This indicates that firm s earning retained for investment activities is affected by the dividend payout. The more dividend payout to shareholders, the lower the retained fund for investment purposes. Financially constraint firms would have a higher negative coefficient between investment and dividend payout due to limited funds. This supported Iuliana s (2008) research findings where high dividend reduces the firm s investment projects. On the other hand, firm s last year debt level was found has significant positive relationship with investment at coefficients. This supported the findings by Marina & Huey Chyi (2012b), where significant positive relationship found between firm s investment and debt level especially in smaller firms. Due to the massive growth in the industry and ease of obtaining external funds with high tangible assets, firms may tend to borrow more in financing positive NPV investment activities. 5. Conclusion This study proven the investment-cash flow sensitivity as well as the firm s former year asset tangibility, leverage level, dividend payout, firm size and investment opportunities play an important role in affecting the current year investment decision. The negative relationship in investment with cash flow and investment opportunity implied that firms are in underinvestment in the industry. Tangibility increases firm s ability in obtaining new external fund for investment purposes. Thus this cause the firms increasing their debt and as well as investment activities. In additional, the result of insignificant relationship with investment activities found on firms financial status and depreciation 111

10 or tax shield opportunity. The immaterial tax shield advantages and the ease of obtaining external fund with large tangibility make the firms less considerate to the two factors. In order to maximise the firm s value, firms willing to take higher risk in new investment though the debt level is high. This causes positive impact of debt level to the firm s investment. Overall, most of the findings supported the past literature. In addition, this study had contributed to the past literature as we found the former year firm level factors can significantly affect the current year investment decision. The findings here can help firms in their investment decisions and value enhancement in future. Research finding here are limited on the Malaysia s construction and material sector with 14 years firm s level data. External level factors were not used here but it could provide a clearer picture of factors affecting firm s investment decisions in the industry. The grouping of financial constraint and non-constraint firms based on the dividend payout was found to be bias in the model. Thus, for future study, researchers may consider to study on firms listed in various industries and adopt a different measurement for firms financial status. Different economic growth and performance especially the financial crisis in year 2008 may influence the firms investment activities. This study was limited to the 14 years study period without considering and comparing the crisis impact. Thus, comparison between time period before and after the financial crisis in future research can provide a better overview of the investment-cash flow sensitivity. On the other hand, further research should access and include other variables including internal and external or country level factors including monetary policy and interest rate. References Abel, AB & Eberly, JC 2010, How Q and cash flow affect investment without frictions: An analytic explanation, Review of Economic Studies, vol 78, pp Almeida, H & Campello, M 2007, Financial constraints, asset tangibility, and corporate investment, The Review of Financial Studies, vol 20 (5), pp Almeida, H, Campello, M & Weisbach, MS 2004, The cash flow sensitivity of cash, Journal of Finance, vol 59, pp Ameer, R 2014, Financial constraints and corporate investment in Asian countries, Journal of Asian Economics, vol 33, pp Auerbach, A & Poterba, J 1987, Tax loss carry forwards and corporate tax incentives, National Bureau of Economic Research, pp Blomström, M & Lipsey, R 1991, Firm size and foreign operations of multinationals, Journal of Economics, vol. 93 (1), pp Carpenter, RE & Guariglia, A 2003, Cash flow, investment, and investment opportunities: New tests using UK panel data, Discussion Papers in Economics, vol. 24 (3), pp Chirinko, R & Schaller, H 1995, Why does liquidity matter in investment equations, Journal of Money, Credit and Banking, vol 27(2), pp Clark, TS & Linzer, DA 2012, Should I use fixed or random effects?, Working paper Cleary, S 1999, The relationship between firm investment and financial status, Journal of Finance, vol 54, pp Cleary, S, Povel, P & Raith, M 2007, The U-shaped investment curve: Theory and evidence, Journal of Financial and Quantitative Analysis, vol 40, pp DeAngelo & Masulis, R 1977, Optimal capital structure under corporate and personal taxation, Journal of Financial Economics, vol. 7, pp

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