The Time-varying Cash Flow Sensitivity of Cash
NyoNyo Aung Kyaw, Sijing Zong
By using data of US manufacturing companies, we revisit the cash flow sensitivity to cash in two sub-samples of 1993-2000 and 2000-2011 to investigate the time-varying features of the cash flow sensitivity of cash. Our results show a weakening coefficient of US manufacturing firms from 1990s to 2000s. The sensitivity in the later time period is only a half of its original scale. Financially unconstrained firms seem to converge with the constrained firms in the later period, leading to the conclusion that macroeconomic conditions impact more on the cash flow sensitivity of cash than the external financial constraint does. Further, our research identifies that the overall decreasing sensitivity is driven by firms with negative cash flows.