Cash flow and capital investment: Empirical evidence of firms in services and consumer goods sector

This paper explores the relationship between cash flow and capital investment of a firm. Using a panel of Nigerian publicly quoted firms in the services and consumer goods sectors, we found that cash flow is insignificantly related to capital investment. This observed insignificant relationship is stronger in episodes where we have a sub-sample of younger firms. The younger firms recording insignificant relationships revealed that these firms cannot easily access external funds when there is a cash flow shortfall because of their low level of experience in their socio-economic networks. On the evidence of older firms, the study shows that when there is a cash flow shortfall for older firms, these firms may face difficulties in financing their investment with internal sources of funds; though, these firms can easily access external funds because of their level of experience in socio-economic networks. The results provide support that internal and external sources of funds can be substituted perfectly for experienced firms.