Cash flows – investment sensitivity under financial constraints: The case of Vietnam

Abstract

This paper focuses on examining the relation between cash flow and investment within different corporate financial status in the context of Vietnamese market. Using a sample of non-financial quoted firms over the 13-year period from 2005 to 2017; We document a strong positive correlation between corporate investments and cash flows. Importantly, our results indicate that firms suffering lower level of financial constraints appear to experience stronger investment to cash flow sensitivity and vice versa. This finding provides new evidence to re-examine the existing controversy on the use of investment & cash flow co-movement as a measurement of corporate financing constraints.