Does Cash Flow Affect Investment? Evidence from the Romanian Capital Market

Our paper addresses the relation between corporate investments and cash flow. While literature agrees upon the existence of a correlation between the two, its interpretation continues to generate intense debates. We use data from a sample of 125 Romanian listed companies for the 2005-2011 period. Using a fixed effects least squares model we document a positive significant association between investments and cash flow. The results show that a 1% cash flow fluctuation leads to a 0.27% alteration of the planned investments. We therefore add to the literature on a widely debated topic by bringing evidence in the case of Romanian listed companies.