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.
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