This paper investigates the impact of growth opportunities on the interpretation of investment-cash flow sensitivity of large Belgian companies. We use data on long time listed firms, recent IPO firms and large unlisted firms to incorporate a wide variation in information asymmetry. Our results reveal that when information asymmetry is high, decreasing cash flow sensitivity as growth prospects improve is not necessarily caused by agency costs of free cash flow. Rather, it may indicate that capital constrained firms increase the use of external financing in high growth periods as these financing sources then tend to become more appealing.
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