Cash flow sensitivity of investment: Evidence from the Polish listed companies

Graph 1

Graph 2

Definitions of the explained and explanatory variables used in the econometric model

Variable	Definition
Investment	Purchase of property, plant, equipment and intangible assetstProperty, plant and equipmentt-1{{{\rm{Purchase}}\,{\rm{of}}\,{\rm{property,}}\,{\rm{plant,}}\,{\rm{equipment}}\,{\rm{and}}\,{\rm{intangible}}\,{\rm{asset}}{{\rm{s}}_t}} \over {{\rm{Property,}}\,{\rm{plant}}\,{\rm{and}}\,{\rm{equipmen}}{{\rm{t}}_{{\rm{t - 1}}}}}}
Tobin's Q	Firm's market valuetTotal Assetst{{{\rm{Firm's}}\,{\rm{market}}\,{\rm{valu}}{{\rm{e}}_t}} \over {{\rm{Total}}\,{\rm{Asset}}{{\rm{s}}_t}}}
Cash Flow	Cash flow from operating activitiestTotal Assetst-1{{{\rm{Cash}}\,{\rm{flow}}\,{\rm{from}}\,{\rm{operating}}\,{\rm{activitie}}{{\rm{s}}_t}} \over {{\rm{Total}}\,{\rm{Asset}}{{\rm{s}}_{{\rm{t - 1}}}}}}
Business sector	{1−Construction2−Trade3−Other services4−Manufacturing\left\{ {\matrix{{1 - {\rm{Construction}}} \hfill \cr {2 - {\rm{Trade}}} \hfill \cr {3 - {\rm{Other}}\,{\rm{services}}} \hfill \cr {4 - {\rm{Manufacturing}}} \hfill \cr } } \right.
Size	{0−Small firms1−Medium−sized firms2−Large firms\left\{ {\matrix{{0 - {\rm{Small}}\,{\rm{firms}}} \cr {1 - {\rm{Medium}} - {\rm{sized}}\,{\rm{firms}}} \cr {2 - {\rm{Large}}\,{\rm{firms}}} \cr } } \right.

Spearman correlations for all continuous variables considered in the econometric model

Variable	Investment	Tobin's Q	Cash flow	Investment	Tobin's Q	Cash flow
	2008			2014
Investment	1			1
Tobin's Q	0.1065	1		0.0448	1
Cash Flow	0.1243	−0.0289	1	0.1445	−0.0258	1

Model for investment estimation results using the Ordinary Least Squares method with robust standard errors

Variable	Model 1 (for 2008)	Model 2 (for 2014)
Tobin's Q	0.1474*** (0.0519)	0.01488 (0.0411)
Cash Flow	1.1029*** (0.3592)	0.7517*** (0.2697)
Business sector (Manufacturing – base level)
Construction	0.1559** (0.0767)	−0.0438 (0.0631)
Trade	0.2669*** (0.0784)	0.0291 (0.0596)
Other services	0.2441*** (0.0746)	0.1099** (0.0493)
Size (Small firms - baselevel)
Medium-sized firms	−0.1617** (0.0823)	−0.1393*** (0.0508)
Large firms	−0.1817*** (0.0746)	−0.1646*** (0.0519)
Constant term	0.2701*** (0.0936)	0.3315*** (0.0550)
Number of observations	236	524
R2	0.2042	0.0771
Adj R2	0.1980	0.0645
F test for business sector	6.39 [0.0004]	2.54 [0.0554]
F test for size	3.00 [0.0519]	6.46 [0.0017]
F test for joint insignificance	9.29 [0.0000]	5.90 [0.0000]
Diagnostic tests	p-value
	Model 1	Model 2
RESET test	0.7948	0.0411
Jarque-Bera test	0.0000	0.0000
Chow test for size	0.6191	0.0000
Breusch-Pagan test	0.0005	0.0000
White test	0.0009	0.0001

Summary statistics of the variables considered in the econometric model

Variable	Mean	Lower quantile	Median	Upper quantile	Mean	Lower quantile	Median	Upper quantile
	2008				2014
Investment	0.408	0.017	0.203	0.650	0.347	0.019	0.145	0.465
Tobin's Q	0.812	0.422	0.677	1.033	0.729	0.406	0.608	0.882
Cash Flow	0.075	0	0.050	0.128	0.066	0	0.036	0.112
Investment by business sector
Construction	0.405	0.089	0.259	0.579	0.242	0.019	0.095	0.228
Trade	0.420	0	0.331	0.743	0.316	0.018	0.122	0.393
Other services	0.499	0	0.214	1.159	0.439	0.006	0.183	0.767
Manufacturing	0.320	0.068	0.170	0.419	0.285	0.045	0.139	0.276
Investment by size
Small firms	0.438	0	0.110	1.041	0.421	0	0.151	0.826
Medium firms	0.400	0.064	0.210	0.627	0.269	0.061	0.159	0.276
Large firms	0.395	0.153	0.283	0.552	0.247	0.063	0.131	0.264