Cash flow-investment relationship in Malaysia: A panel threshold regression analysis

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.