Full metadata
Title
Inventory accumulation, cash flow, and corporate investment
Description
I show that firms' ability to adjust variable capital in response to productivity shocks has important implications for the interpretation of the widely documented investment-cash flow sensitivities. The variable capital adjustment is sufficient for firms to capture small variations in profitability, but when the revision in profitability is relatively large, limited substitutability between the factors of production may call for fixed capital investment. Hence, firms with lower substitutability are more likely to invest in both factors together and have larger sensitivities of fixed capital investment to cash flow. By building a frictionless capital markets model that allows firms to optimize over fixed capital and inventories as substitutable factors, I establish the significance of the substitutability channel in explaining cross-sectional differences in cash flow sensitivities. Moreover, incorporating variable capital into firms' investment decisions helps explain the sharp decrease in cash flow sensitivities over the past decades. Empirical evidence confirms the model's predictions.
Date Created
2013
Contributors
- Kim, Kirak (Author)
- Bates, Thomas (Thesis advisor)
- Babenko, Ilona (Thesis advisor)
- Hertzel, Michael (Committee member)
- Tserlukevich, Yuri (Committee member)
- Arizona State University (Publisher)
Topical Subject
Resource Type
Extent
vii, 82 p. : ill. (some col.)
Language
Copyright Statement
In Copyright
Primary Member of
Peer-reviewed
No
Open Access
No
Handle
https://hdl.handle.net/2286/R.I.18145
Statement of Responsibility
by Kirak Kim
Description Source
Viewed on Mar. 30, 2015
Level of coding
full
Note
Partial requirement for: Ph. D., Arizona State University, 2013
Note type
thesis
Includes bibliographical references (p. 62-66)
Note type
bibliography
Field of study: Business administration
System Created
- 2013-07-12 06:30:09
System Modified
- 2021-08-30 01:39:00
- 3 years ago
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