Balance Sheet Theory During COVID-19: The Relationship Between Cash Flow and Investment in Polish Listed Companies
More details
Hide details
Faculty of Economic Sciences, University of Warsaw, Poland
Submission date: 2021-08-26
Final revision date: 2022-03-21
Acceptance date: 2022-09-21
Publication date: 2022-12-30
Corresponding author
Marian Nehrebecki   

Faculty of Economic Sciences, University of Warsaw, Poland
GNPJE 2022;312(4):74-88
The aim of this paper is to verify the theory of the balance sheet channel among Polish listed companies, especially during the COVID-19 pandemic period. This objective was achieved by examining the relationship between cash flow and investment, based on an Emerging Markets Information Services (EMIS) database covering companies listed on the Warsaw Stock Exchange, including the bourse’s alternative NewConnect market, and using panel econometric models (pooled OLS, Fixed Effect Model, Random Effect Model and Panel VAR). It has been established that there are no grounds to reject the hypotheses that investment is positively associated with the cash flow of Polish listed companies and that the relationship between investment and cash flow is particularly strong for financially constrained companies. This means that there is evidence in support of the balance sheet channel theories. The hypothesis that the relationship between cash flow and investment is especially strong for financially constrained companies during the COVID-19‑induced recession has been rejected. The main novelty of the paper is that the balance sheet channel theory was verified for Polish listed companies, with a particular emphasis on the COVID-19 pandemic period.
Agca S., Mozumdar A. [2008], The impact of capital market imperfections on investment-cash flow sensitivity, Journal of Banking and Finance, 32 (2): 207–216.
Bernanke B. S., Gertler M. [1995], Inside the Black Box: The Credit Channel of Monetary Policy Transmission, Journal of Economic Perspectives, 9 (4): 27–48.
Bondt G. de [2004], The balance sheet channel of monetary policy: First empirical evidence for the euro area corporate bond market, International Journal of Finance & Economics, 9 (3): 219–228.
Campello M., Graham J., Harvey C. [2010], The real effects of financial constraints: Evidence from a financial crisis, Journal of Financial Economics, 97 (3): 470–487.
Croissant Y., Millo G. [2008], Panel Data Econometrics in R: The plm Package, Journal of Statistical Software, 27 (2): 1–43.
Croissant Y., Millo G. [2015], Plm: Linear Models for Panel Data, (accessed on 12.04.2022).
Cummins J. G., Hassett K. A., Oliner S. D. [2006], Investment behaviour, observable expectations, and internal funds, Am Econ Rev, 96: 796–810.
Drobetz, W., Haller R., Meier I., Tarhan V. [2017], The impact of liquidity crises on cash flow sensitivities, The Quarterly Review of Economics and Finance, 66 (November): 225–239.
Erickson T., Whited T. [2000], Measurement error and the relationship between investment and q, Journal of Political Economy, 108: 1027–1057.
Fazzari S., Hubbard G., Peterson B. [1988], Financing Constraints and Corporate Investment, Brookings Papers on Economic Activity, 78 (2): 141–195.
Gilchrist S., Himmelberg C. [1995], Evidence on the role of cash flow for investment, Journal of Monetary Economics, 36: 541–72.
Gul S., Tastan H. [2018], The impact of monetary policy stance, financial conditions, and the GFC on investment-cash flow sensitivity, Working Paper No 18/11, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
Gupta G., Mahakud J. [2019], Alternative measure of financial development and investment-cash flow sensitivity: Evidence from an emerging economy, Financial Innovation, 5 (1): 1–28.
Hoshi T., Kashyap A., Scharfstein D. [1991], Corporate Structure, Liquidity, and Investment Evidence from Japanese Industrial Group, Quarterly Journal of Economics, 106: 33–60.
Malinowska A. [2016], Liquidity constraints and the balance sheet channel of monetary policy transmission, Studia Ekonomiczne, 1: 71–88.
Masuda K. [2015], Fixed investment, liquidity constraint, and monetary policy: Evidence from Japanese manufacturing firm panel data, Japan and the World Economy, 33: 11–19.
Mohd I. A., Yunus M. M. [2015], Cash flow-investment relationship in Malaysia: A panel threshold regression analysis, Jurnal Pengurusan, 45: 49–59.
Mulier K., Schoors K., Merlevede B. [2016], Investment-Cash Flow Sensitivity and Financial Constraints: Evidence from Unquoted European SMEs, Journal of Banking and Finance, 73 (December): 182–197.
Nehrebecki M. [2020], Cash flow sensitivity of investment: Evidence from the Polish listed companies, Central European Economic Journal, 7 (54): 157–171.
OECD [2021], Economic Outlook.
Peydró J. L., Dassatti C., Tous F. R., Vicente S. [2020], Macroprudential and monetary policy: loan-level evidence from reserve requirements, Discussion Paper Series, DP14224.
Shabbir S. [2012], Balance Sheet Channel of Monetary Transmission in Pakistan: An Empirical Investigation, SBP Research Bulletin, 8(1): 1-12.
Sigmund M., Ferstl R. [2017], Panel Vector Autoregression in R with the Package panelvar, (accessed on 12.04.2022).
Silva F., Carreira C. [2012], Do Financial Constraints Threat the Innovation Process? Evidence from Portuguese Firms, Economics of Innovation and New Technology, 21 (8): 701–736.
Tyrowicz J. [2009], Blame no one? Investment decisions of the Polish stock-listed companies, Working Papers, Faculty of Economic Sciences, University of Warsaw, 9.
Zicchino L. [2001], Endogenous financial structure and business fluctuations in an economy with moral hazard, mimeograph, Columbia University.
Journals System - logo
Scroll to top