The Effect of Cash Holding on Investment Sensitivity to Operating Cash Flow Volatility in Financially Constrained Firms

Changes in operating cash flows and use them for capital expenditures, may cause changes in firm’s investment. However, the cash holding and financial resources could affect on changes in investment. The aim of this study is to evaluate the effect of cash
holding on investment sensitivity to operating cash flow volatility.
Stock Exchange firms in the years 2006 to 2013 were selected. To test hypotheses the GLS method of regression has been used. The results of the research hypotheses show that firms with financial constraints, operating cash flow volatility had a negative effect on
investment. The results suggest that with increased cash holdings in firms with financial constraints, the negative impact of volatility on investment decreases.