Investment-cash flow sensitivity: Evidence from investment in identifiable intangible and tangible assets activities

In this study, we examine whether investments in fixed (identifiable) intangible assets and tangible assets are sensitive to cash flow and the extent to which this sensitivity differs for firms with different levels of financial constraints. Using both UK private and public firms’ data, our overall analysis shows strong positive (negative) effects of cash flow on intangible assets (tangible assets) investments. When we split the data on the basis of listing status, we observe that cash flow is positively (negatively) and significantly related to intangible assets (tangible assets) investments for private firms but not so for public firms. In addition, we further observe that both public and private firms' investments follow a similar pattern when we split our data based on the availability of internal funds. Moreover, we also find that the sensitivity of investment (identifiable intangible assets) to cash flow is higher for young and large private firms but lower for small and old ones. Our results remain similar to other econometric specifications which account for possible endogeneity issues.