Abstract
Given the importance of cash flow, being in determining the investment performance of firms, we have presented an overview of purely practical studies that analyze this relationship. The majority of these studies have proven the existence of such relationship, both significant and positive, between investment and the CF, but the unanimity has not explained this positive relationship.We are interested only in analyzing the effect of the debt, liquidity and firm size on the investment-cash flow sensitivity on a sample of 82 French firms that compose the SBF 250 index, from 1999 to 2005. Thus, we have noticed that the debt has a negative effect on the investment-cash flow sensitivity and the firm size has a positive effect on this relationship.
Highlights
The growth depends double on the investment
We have noticed that the debt has a negative effect on the investment-cash flow sensitivity and the firm size has a positive effect on this relationship
1- Theoretical Framework: A- The effect of debt: The hypothesis of perfected capital markets on which base themselves the empirical models of investment supposes that, in a world without tax nor transactions costs, the value of a firm and the profitability of an investment are independent from the mode of financing, that it is made by debts or by equity capital
Summary
The growth depends double on the investment. the investment is, in the side of the consumption, one of the important components of the demand. The existence of imperfections in financial markets, including the problems of asymmetric information between lenders (credit institutions) and borrowers (firms), can generate frictions that make the investment decisions dependent from the chosen mode of financing. Consideration of these information asymmetries in the modeling of the market of credit has led to two types of results that complement each other, with a direct impact on the investment behavior of firms. Among the conclusions concerning the models incorporating of information asymmetries is that the cost of external financing of such firm depends on its financial situation. The Financing conditions of such productive investment depend on characteristics of the financial situation of each firm
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