Cash Flow-Investment Relationship in Malaysia: A Panel Threshold Regression Analysis
Hubungan Aliran Tunai-Pelaburan di Malaysia: Satu Analisis Penganggaran Nilai Ufuk

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM Bangi, Selangor, MALAYSIA.

mohadis@ukm.edu.my

Faculty of Management and Muamalah
International Islamic University College Selangor
43000 Kajang, Selangor, MALAYSIA.

mawarmurni@kuis.edu.my

Abstract

The objective of this article is to analyse the relationship pattern of cash flow-investment among low and high debt firms. To investigate the issue, we employed Hansen’s (1999) threshold method of non-dynamic panel data. In this article, the firm debt ratio was used as threshold variable. A balanced panel data of companies listed on Bursa Malaysia, comprising of 234 companies for a period from 2004 to 2010, was utilized in this study. The results showed that debt ratio has a significant role at explaining the cash flow-investment relationship among firms. In particular, the results showed that low debt firms exhibit significant support to the financial constraints hypothesis, while high debt firms demonstrate support to the free-cash flow hypothesis. This finding explains why the cash flow-investment relationship of certain firms is negative, while other firms are positive. It also signifies the inability of constrained firms to access to external financing; thus, leading the firms to significantly rely on their internal financings.

Keywords

cash flow; investment; non-dynamic panel; threshold regression

Citation

Mohd Adib, M. A., & Yunus, M. M. (2015). Cash Flow-Investment Relationship in Malaysia: A Panel Threshold Regression Analysis. Jurnal Pengurusan, 45, 49–59.

@article{ismail2015cash,
  title={Cash Flow-Investment Relationship in Malaysia: A Panel Threshold Regression Analysis},
  author={Mohd Adib, Mohd Adib and Yunus, Mawar Murni},
  journal={Jurnal Pengurusan},
 

volume={45},
  number={},
  pages={49—59},
  year={2015},
  doi={},
  publisher={Penerbit UKM},
}

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45 (2015) 49 – 59

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