The Effect of Debt, Firm Size and Liquidity on Investment -Cash Flow Sensitivity

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.