Discussion of “Overinvestment of free cash flow”
- Daniel Bergstresser
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Richardson’s paper is a useful addition to the literature on the relationship between cash flow and investment. His approach to estimating this relationship is a new twist on earlier approaches. Like most of this literature, Richardson finds evidence that firms’ investment decisions are excessively sensitive to current cash flow, suggesting that violations of the Modigliani–Miller assumptions are empirically important. My view is that conceptual and implementation problems beset Richardson’s attempt to identify the specific violation of the Modigliani–Miller assumptions, and his evidence on this second point is not convincing.
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- Discussion of “Overinvestment of free cash flow”
Review of Accounting Studies
Volume 11, Issue 2-3 , pp 191-202
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers-Plenum Publishers
- Additional Links
- Cash flow
- Modigliani-Miller theorem
- Corporate governance
- Industry Sectors
- Author Affiliations
- 1. Harvard Business School, Baker Library 245, Boston, MA, 02163, USA