The Role of Cash Flow Sensitivity in Shaping Investment Strategies Across GCC Countries

The current study examines the relationship between investment sensitivity and cash flow, with a particular focus on how capital market imperfections influence this sensitivity in GCC countries. Drawing on data from 100 publicly listed energy and non-financial companies, the research employs robust analytical and econometric methods, including a fixed-effects model for panel data spanning 2018 to 2023. Two regression models are utilized: the first examines the sensitivity of investment to cash flow across both sectors, while the second assesses the influence of capital market imperfections on this relationship. Key findings reveal that energy companies tend to be larger than their non-financial counterparts. At a 5% significance level, cash flow exerts a significant positive effect on investment sensitivity in both sectors. Moreover, a reduction in capital market imperfections corresponds with a decrease in the sensitivity of investment to cash flow. These results suggest that heightened investment sensitivity to cash flow reflects a tendency for firms to curtail investments when external financing is constrained, potentially hindering national economic growth. Based on these findings, the study advocates for targeted interventions. Policymakers are urged to implement micro-level initiatives aimed at enhancing corporate efficiency and macro-level strategies designed to strengthen financial markets, thereby fostering a more resilient economic environment.