There is ample empirical evidence that investments in (public) companies are correlated with cash flow. This may either be explained as evidence of financing constraints (Fazzari, Hubbard and Petersen, 1988), as excessive conservatism by managers, restraining investments to the internally generated cash flow (Kaplan and Zingales, 2000). We test the investment-cash flow sensitivity in unquoted Belgian companies with a modified sales accelerator model, using unbalanced panel data and GMM techniques. We show that investments in tangible fixed assets are positively related to cash flow. Contrary to our expectations, this sensitivity is not reduced, but it increases, when companies receive venture capital. We interpret the results as evidence of the presence of financing constraints and underinvestment problems in unquoted companies. Venture capital intermediaries are not able to eliminate financing constraints in Belgian unquoted companies
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