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Organizational Capital and Investment‐Cash Flow Sensitivity: The Effect of Management Quality Practices
Author(s) -
Attig Najah,
Cleary Sean
Publication year - 2014
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12046
Subject(s) - organizational capital , cash flow , business , investment (military) , working capital , capital (architecture) , finance , monetary economics , economics , intellectual capital , politics , political science , law , history , archaeology
This paper examines the influence of organizational capital, as evident in management quality practices, on the response of firm investment to internal cash flows. We provide novel and strong evidence that investment sensitivity to internal cash flows decreases in the presence of superior management practices. We also find that superior management practices reduce the firm's financing frictions, evident in lower capital constraints. Our results are robust to numerous tests. Overall, our findings suggest that intangible organizational capital is important for investment decisions and that superior management practices contribute to value‐maximizing behavior.