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Inventory Accumulation, Cash Flow, and Corporate Investment

Abstract 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 subst... (more)
Created Date 2013
Contributor Kim, Kirak (Author) / Bates, Thomas (Advisor) / Babenko, Ilona (Advisor) / Hertzel, Michael (Committee member) / Tserlukevich, Yuri (Committee member) / Arizona State University (Publisher)
Subject Finance / Economics / Cash Flow Sensitivity / Dynamic Investment Decision / Q-theory / Real Flexibility
Type Doctoral Dissertation
Extent 90 pages
Language English
Reuse Permissions All Rights Reserved
Note Ph.D. Business Administration 2013
Collaborating Institutions Graduate College / ASU Library
Additional Formats MODS / OAI Dublin Core / RIS

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Description Dissertation/Thesis