Publications

1.  What Drives Investment-Cash Flow Sensitivity Around the World? An Asset Tangibility Perspective, with Fariborz Moshirian, Vikram Nanda and Bohui Zhang, Journal of Banking and Finance (2017), vol. 77, pp. 1-17, Lead article.

Motivated by ongoing debates on investment-cash flow sensitivity (ICFS) and its documented decline and disappearance in the U.S., we investigate the determinants of ICFS. Using firm-level data across 41 countries for the 1993–2013 period, we document an important role of asset tangibility in explaining the patterns in ICFS. Asset tangibility affects ICFS through two channels: investment intensity and cash flow persistence. As the share of tangible capital, investment and cash flow persistence has fallen in developed economies, ICFS has declined. In contrast, as developing economies operate with more tangible capital, have higher investment rates and more persistent cash flows, their ICFS is more stable. The results support our explanation of ICFS as a reflection of capital (investment) intensity and income predictability, rather than a measure of financial constraints. 


2. Firms from Financially Developed Economies Do Not Save Less, Critical Finance Review (2020), vol. 9, no. 1-2, pp. 305-351. 

Contrary to evidence in Khurana et al. (2006), I find that firms from financially developed economies do not have systematically smaller propensities to save out of cash flow. This new result occurs for two interrelated reasons. First, cash flow uncertainty affects saving propensities at least as much as do external finance constraints. Second, although financial development eases external finance constraints, it also contributes to greater cash flow uncertainty through more innovation and higher asset intangibility. This cross-country result holds for financially constrained firms and those with greater cash flow uncertainty. The inverse relation between financial development and saving propensities can hold only for unconstrained firms and those with lower uncertainty. Liberalization of stock markets further bolsters the results.


3. The Corporate Propensity to Dissave, with Vikram Nanda, Critical Finance Review (forthcoming).

Extending the results of Riddick and Whited (2009), we show that firms systematically dissave from liquid assets in response to negative cash flow. This dissaving behavior is consistent with firms' rational willingness to absorb negative productivity shocks and retain assets that could become productive in the future. Dissaving behavior significantly varies with the levels of financial constraints, cash reserves, cash flow uncertainty and losses. Our evidence is obtained within the integrated regression framework, in which the cash flow identity holds implicitly, and using both OLS and q measurement-error consistent estimators. Because a large and growing fraction of U.S. firms yield negative cash flow, the corporate propensity to dissave is a systematic phenomenon.