Investment cash flow sensitivity under managerial optimism: New evidence from NYSE panel data firms

Ezzeddine Ben Mohamed, Richard Fairchild, Abdelfettah Bouri

Research output: Contribution to journalArticlepeer-review

24 Citations (SciVal)


Investment cash flow sensitivity constitutes one important block of the corporate financial literature. While it is well documented in standard corporate finance, it is still young under behavioral corporate finance. In this paper, we test the investment cash flow sensitivity among panel data of American industrial firms during 1999-2010. Using Q-model of investment (Tobin, 1969), we construct and introduce a proxy of managerial optimism following Malmendier and Tate (2005a) to show the impact of CEOs' optimism in the relationship between investment and internal cash flow. Our results report a positive and significant coefficient of investment to cash flow for the full sample. While, on estimations of our model using sub-sample of more and less constrained firms, we find that the sensitivity exists stronger only for totally constrained group. We find also that board characteristics can reduce investment policy's distortions.

Original languageEnglish
Pages (from-to)11-18
Number of pages8
JournalJournal of Economics, Finance and Administrative Science
Issue number36
Publication statusPublished - 1 Jun 2014


  • Corporate investment
  • Financial constraints
  • Investment cash flow sensitivity
  • Managerial optimism
  • Over investment
  • Underinvestment

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)


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