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The purpose of the study is to understand the role of cash flow sensitivity to investment as a measure of financial constraints among listed Indian manufacturing firms. It also analyses the role of tangibility in alleviating financial constraints. Further, the role of other financial factors in investment decisions is explored.

The study is conducted using the generalized method of moments (GMM) estimator on dynamic panel data for the period of (2009–2015) on 768 listed manufacturing firms.

The analysis finds that cash flow sensitivity is a valid measure of financial constraints in the Indian manufacturing sector. Results according to splitting criteria found that investment decisions of standalone firms are more sensitive to cash flow than group affiliated firms. Further, splitting the firms according to …