Exploring the Research Journey of Investment-Cash Flow Sensitivity: A Bibliometric, SLR, and Content Analysis

Corporate investment decisions are vital in a firm’s establishment, growth, and survival.^[1,2] Such a decision comprises short-term and long-term investment decisions.^[1] However, long-term investment decisions are more crucial for firm sustainability as they provide long-term cash flow, widen business operations,^[3] improve production capacity, and strengthen the firm’s solvency position.^[3] At the same time, long-term investment decisions need utmost care as they involve large cash outlay, are irreversible, and greatly influence a firm‘s earnings and growth potential.^[4,5] Implementing investment decisions requires adequate funds, which can be arranged from external and internal sources.^[6] According to Modigliani and Miller’s proposition,^[7] the world is friction-free, and there is no hurdle in raising external finance, makinexternal and internal finance a perfect substitute. Thus, in such a context, investment decisions are independent of financing decisions.^[8] However, such a perfect capital market does not exist in the real world.^[9–13] as there are many frictions in the market.^[14–16] The pecking order theory argues that frictions may arise due to information asymmetries.^[14] Asymmetric information, or information asymmetry, occurs when one party holds superior information than another, resulting in an unequal distribution of transaction costs. Within the pecking order theory framework, retained earnings financing, also known as internal financing, originates directly from the company and mitigates information asymmetry.

In contrast to external financing options like debt or equity financing, which entail fees for obtaining external funds, internal financing emerges as the most economical and straightforward funding source.^[17,18] Agency problems are highlighted in the agency theory,^[8] taxes and various transaction costs are discussed in the static trade-off theory,^[9] and frictions make the market imperfect. Consequently, such imperfectness in the market creates a wedge between the cost of internal and external sources of funds.^[19,20] According to Gupta^[21] than internal funds due to imperfect capital markets. Hence, making the right financial decision in the imperfect capital market is challenging for every financial manager.^[22,23] Earlier studies.^[24–26] have shown that cash flow (internal funds) is crucial for firms‘ investment decisions, mainly when there are high external fund costs.

Similarly, the Pecking Order Theory^[14] of finance also prioritizes the importance of internal funds in investment decisions. Thus, realizing the significance of cash flow in investment decisions, substantial attention has been paid by researchers across the globe to examine the dependency of investment on the firm’s cash flow, which is known as Investment-Cash Flow Sensitivity (ICFS).^[5] However, despite the growing interest in cash flow sensitivity topics in corporate finance literature, a dearth of literature focuses on systematic literature reviews, bibliometric analysis, and thorough evaluations of available work in this field.

This study pinpoints the crucial regions and current trends of investment-cash flow sensitivity and recommends further study. Using an SLR (Systematic Literature Review) and bibliometric analysis, we highlighted the publishing patterns and intellectual structure in this field of literature. To the best of our knowledge, this work is the first in-depth study on investment-cash flow sensitivity literature that combines an SLR and bibliometric analysis. By doing so, we respond to the following Research Queries (RQs):

‘RQ1: What is the recent publication trend in the field of investment-cash flow sensitivity?’

‘RQ2: Which journals have the most impact in this area?’

‘RQ3: Which countries and organizations are most engaged in this field of study?’

‘RQ4: Who are the most influential authors, and what is the current state of collaboration?’

‘RQ5: What are the most relevant investment-cash flow sensitivity research themes?’

‘RQ6: What is the intellectual framework in this area?’

‘RQ7: What dry research areas of investment-cash flow sensitivity need more attention from researchers?’

By performing an extensive evaluation of prior work, this paper attempts to fill the research gap and adds to the body of knowledge on investment-cash flow sensitivity. It gives a complete knowledge structure of the subject field and synthesizes the literature. It is distinct from earlier studies as it has made a novel attempt to conduct a comprehensive review by combining both SLR and bibliometric analysis on the investment-cash flow sensitivity topic, which is the first of its kind in the global arena. Secondly, most studies have extracted bibliographic data from Scopus or the Web of Science database. However, very few studies have considered both databases for conducting bibliometric analysis in general. The SLR and bibliometric analysis in the investment-cash flow sensitivity area is absent globally. So, in this paper, we have made a unique attempt by extracting data from both Scopus and Web of Science databases to make the study more comprehensive and reduce biases. Thirdly, this study has used the latest tools for analysis, like Biblioshiny and Vosviewer software, where we introduced the Sankey diagram (three-field plot analysis), in the field of investment-cash flow sensitivity and made the necessary analysis and visualizations. Lastly, this study helps the researchers to identify literature growth roadblocks and the current status as well as the future direction of research in this area.

The methodology, analysis, and conclusion are covered in the following sections of the paper.

A mix of SLR, bibliometric, and manual content analysis tools have been used for analysis. SLR ensures a scientific, transparent, and imitable process.^[27] SLR is superior to traditional narrative reviews.^[28] in various ways, such as better quality of review process and results;^[29,30] curtailing bias and errors,^[31] strong validity of the process as its steps are replicable at the time of review;^[32] offers data synthesis and literature mapping of a specific research topic;^[28] and it also provides an outline that incorporates existing knowledge to academics and practitioners.^[8,31]

Bibliometric analysis is a quantitative method that provides deep insight into the literature.^[33,34] and aids researchers in forming new knowledge.^[35–38] At the same time, content analysis is a method of analyzing selected papers and deriving a synthesis.^[39–41] Bibliometrics encompasses a variety of techniques, including co-word analysis for keywords,^[42] co-author analysis, citation analysis, co-citation analysis, and bibliographic linking.^[34]

In this study, our methodology is broken down into two steps: the first involves finding, reading, and comprehending pertinent publications; the second involves bibliometric analysis of the papers that have been found. The steps involved in data retrieval are detailed in Figure 1.

Figure 1:
Data retrieval process. Source: Authors’ compilation.

Data are mined from the Scopus and Web of Science (WoS) databases, the global premier databases for published articles, abstracts, and citations and used by earlier studies.^[43–45] According to Martinez et al., (2019) Scopus database has a high number of publications in financial economics, with access to 14,000 publications. Scopus categorizes 14 types of documents and six sources. Further, the WoS database contains wide-ranging academic resources that comprise more than 8,700 core scholarly journals.^[46,47] Unlike the earlier studies confined to one database, either Scopus,^[35,37,38] or Web of Science,^[39–42] this paper has made a different attempt by considering both databases to make the study comprehensive. The data was collected from the default publication year i.e. from 1988 to 2022, in both databases. A string of appropriate search terms “Investment-Cash Flow Sensitivity” OR “Cash-Flow Sensitivity” OR “Operating Cash-Flow Sensitivity” OR “Cash Flow Sensitivit*” OR “Investment-Cash Flow Sensitivit*” are used to identify the papers from title, abstract, and keywords which resulted into 1,027 documents comprising of 413 documents from Scopus and 614 documents from Web of Science. After getting this result, we applied the first-level filtering criteria. The main objective behind this filtering criteria is to maintain the academic rigor of the study. Hence, we excluded non-relevant sources, such as conference proceedings, that may not undergo the same level of peer review. In this filtering process, we excluded 32 conference proceedings from Scopus and 55 conference proceedings from WoS databases, and we proceeded with 940 documents (scopus: 381+ WoS: 559). Then, such documents were further refined to English language and other languages (Portuguese-03, Chinse-02, Spanish-02, and Japanese-01) ware excluded, yielding 932 documents. Further, all the titles, abstracts, and keywords are reviewed manually. Those titles, abstracts, and keywords found irrelevant to our main theme (288 documents) were removed, resulting in 644 documents. As we have considered both Scopus and WoS databases, certain documents are common in both databases, so proper attention has been given, and duplicate documents (242 documents) are removed by the help of the ‘R-studio’ software package. Finally, 402 documents were found to be eligible for analysis.

After shortlisting the final 402 documents, all the documents are exported to “biblioshiny” (‘a shiny app providing a web interface for bibliometric analysis’) and “VOSviewer” (version 1.6.16), a bibliometric mapping and visualization software tool. Figure 2 illustrates the analytical structure of the research.

Figure 2:
Research structure for the study. ‘Where TP=Total Publications’; ‘TGC=Total Global Citations’; TLC=Total Local Citations; ‘SD=Sankey Diagram’; CoC=Co-citation Count; CoA=Co-authorship Count; DOC=Degree of Centrality; KF=Keywords Frequency; TSA=Thematic Structure Analysis, BL=Bradford’s Law’. Source: Authors’ compilation.

To understand the current trend of publication in this area, a descriptive analysis of 402 documents are performed. Table 1 summarises the essential information on the bibliographic data used in the study. We examined the total publishing trend by year, nation, region, journal, and institution to address our first Research Question (RQ1).

Our RQ1 is “What is the recent publication trend in the field of investment-cash flow sensitivity?”. We have analyzed the annual publication trend of investment-cash flow sensitivity to answer this question. Figure 3 describes the annual growth trend of publications on ICFS. 402 documents have been published on this area. The oldest document belongs to 1989, when only one document was published, and no documents have been published since 1994. The number of documents are in the single digit up to 2007; in 2008, it touched double digits and continued growing. At first sight, it indicates that a keen interest on the area of ICFS has been started since 2008-2009. One possible reason is that the global financial crisis began in 2007 and triggered scholars’ worldwide interest in exploring firms’ financial behaviour, including ICFS. The literature^[48,49] by Arslan et al. (2006), and Machokoto et al. (2021) have also evidenced that ICFS is one of the crucial factors for decision-making during a crisis. Thus, this novel COVID-19 pandemic is expected to trigger scholars to explore the ICFS of firms during such a crisis. In the subsequent years, the number of publications increased rapidly to almost double in 2012 and grew afterwards. So, it shows an upward growth trend, indicating that global researchers have been evolving towards this area.

Figure 3:
Annual publication trend. Source: Authors’ compilation.

Further, we have segregated the evolution of ICFS research into three stages based on its growth in publication: the initial stage (1988-2002) with only 11 documents, the pre-expansion stage (2003-2010) with 83 documents, and the expansion stage (2010 onwards) with 308 documents. Furthermore, we find that though publication on ICFS started in 1989 and geared up in 2008, the most famous work was done in 1997 with the highest citations (see Table 6). So 1997 is the most influential year in the investment-cash flow sensitivity literature, followed by 2001 and 2005.

Our RQ2 is “Which journals have the most impact in this area?”. Table 2 shows the top 15 contributing journals in terms of publication. “Journal of banking and finance” published by Elsevier, holds the highest number of publications and is the most productive journal in ICFS. It holds the highest ranking as per ABDC (Australian Business Deans Council) and h-index score and contributes around 19% to the top 15 journals. Table 2 indicates that only four publishers possess the top fifteen contributing journals. Elsevier has six journals, Taylor and Francis has four, Willy-Blackwell has three, and Emerald Publishing Group has only two journal publications. Interestingly, though the rank of “Journal of Finance” is sixth with seven documents but it has the highest cite score (11.2) and journal impact factor (7.544). Further, most of the journals are ABDC ranking journals, including the rank of ‘A*’, ‘A’ and ‘B’, which indicates that investment-cash flow sensitivity occupies a place in the quality journals in business and management domains.

Table 3 depicts that investment-cash flow sensitivity has attracted attention from 50 countries. China, USA, and the UK are the top contributors in this field, having 24%, 19%, and 8% of contributions, respectively. Further, most counties’ contribution ranges from less than 1% to 4%. Notably, 21 countries have contributions of less than 1%, 10 countries have 1%, 11 countries have 2%, and four countries have 3-4%. This shows that most countries are the new entrant in the field and indicates a good scope to work on ICFS in such countries as it is one of the under-researched areas.

Furthermore, in the case of citation, the USA is the leading country, followed by China, which indicates that the USA’s work has received maximum acknowledgement in the area of ICFS. Our result shows that in the case of the corresponding author’s country’s document, China is leading, highlighting that most work is initiated from China.

So far, our dataset shows that 752 organizations have paid attention to ICFS and published a paper on that. Table 4 shows that out of such Universities, the “University of Salamanca” is the most active one and has contributed six papers. As evidenced by the country’s productivity, Chinese institutions are most active in ICFS research.

As per the information given in Table 1, 744 authors worked on ICFS literature, composing 74 single-author documents and 670 multi-author documents. Table 5 indicates that out of such authors, the most contributing author is Guizani M, who has published 06 papers on the topic, followed by Ben M E and Chen Y, who have five papers each. Interestingly, Guizani M has published most of his papers within the last three years, and his publication start year is 2019. So, in a short span, he made a major contribution. However, regarding citation, h-index, and g-index, ‘Cleary S’ is the leading.

Meanwhile, “Meier I” is the leading one as per the m-index. Hirsch (2005) states, “The h-index is a robust estimator of the total impact of a scientist’s contribution in a given research field. This index is a novel and simple measure capturing both the quantity and the visibility of authors’ published work”. At the same time, the g-index developed by Egghe (2006) is an improvement over the h-index. The g-index also shows the relationship between published papers and the level of citations.^[50,51] Similarly, the m index is also an h-index variant measured by the median value of the citations received by documents in the Hirsch core.^[52] It is presumed that the h-index is sensitive to the career length, the g-index is sensitive to citation, and the m-index is sensitive to the length of the scholar’s research life or the length of a journal.^[53,54]

Figure 4 depicts the top authors on ICFS and their publications over time. This figure shows that “Tseng T” is the most extended serving author, and “Tran Q” is the highest-cited author among the top contributing authors. The line represents the author’s timeline, the size of the bubble is proportional to the number of documents published, and the colour intensity of the bubble is proportional to the total citations received by the document.

Figure 4:
Top authors on ICFS and their production over time. Source: Authors’ compilation.

There are 402 articles have been published on investment-cash flow sensitivity. Out of such 402 articles, the most relevant articles in terms of global and local citations are presented in Table 6. Citation represents the impact of the document on the scientific community and its popularity.^[46] According to Kent Baker et al.^[55] “global citations refer to the number of times other works cite an article in the database, including works in other research areas and disciplines. Local citations show an article’s popularity within the network”. From Table 6, it is found that the document authored by ‘Kaplan S.N., 1997’ is the most relevant. The paper’s title is “Do investment-cash flow sensitivities provide useful measures of financing constraints?” published in ‘The Quarterly Journal of Economics in 1997. This paper examines the relationship between financial constraints and ICFS. The study concludes that less financially constrained firms have more ICFS. This paper is one of the initial contributions to the ICFS literature.

Figure 5 demonstrates the three-field plot for the country, keywords, and journal on ICFS. A Sankey diagram was used to visualize the interaction of these three fields. Sankey diagram is used primarily to visualize the flow of energy or materials in various networks and processes.^[56] and are now popularly used in other domains also.^[57] We have generated this diagram using Biblioshiny software. In this diagram, the size of the rectangular boxes is proportional to the frequency of occurrences.^[56] Thus, it can be inferred that China is the leading country with maximum work on investment-cash flow sensitivity, and the researchers have mostly worked on two major key themes, i.e., financial constraint and investment-cash flow sensitivity. These two terms are prevalent in the Journal of Banking and Finance and Journal of Corporate Finance. Followed by China, USA is the second leading country and its scholars have mostly worked on financial constraint, investment-cash flow sensitivity, corporate governance and cash flow. Similarly, financial constraint and corporate governance are also popular among researchers of UK and India. The keyword-wise analysis demonstrates that financial crisis, information asymmetry and cash holdings are the less researched themes in the field of investment-cash flow sensitivity and have a scope for researchers to work.

Figure 5:
Sankey diagram of country, keywordss, and journal. Source: Authors’ compilation.

Citation analysis determines a research paper’s impact.^[55] Figure 6 illustrates the prominent nodes in the citation network created through VoSviewer software with many citations. The threshold of at least 50 citations is taken, and 45 documents meet the threshold limit for analysis. The result also aligns with Table 6 and indicates that Kaplan and Zingales (1997) is the most relevant document in the field of ICFS.

Figure 6:
Citation network on investment-cash flow sensitivity. Source: Authors’ compilation.

The fifth research question of our study, “ Which themes of investment-cash flow sensitivity are the most popular among scholars?” can be answered by analyzing keyword co-occurrences analysis.

Analyzing the keyword co-occurrences is always an insightful practice as keywords provide logical explanations about the document’s content.^[58,59] The link between two keywords represented by numerical value expresses the relationship between them, and it is presumed that the higher the value, the stronger the link strength will be.^[59] The link strength between two keywords indicates the frequency of these keywords mentioned in the same paper.^[59] The aggregate number of these links refers to the total number of these keywords mentioned jointly. The default settings of the VoSviewer software is the five in the keywords occurrence analysis, which denotes only those two keywords will highlighted in the bibliographic network if those two keywords co-occurred in a paper five times or more. In this study, we have analyzed 1,218 keywords, of which we have considered the author’s keywords (714) of 402 documents, and 42 met the threshold limit. The results depicted in Figure 7 show that there are nine clusters.

Figure 7:
Keywords occurrence network analysis of investment-cash flow sensitivity. Source: Authors’ compilation through VOSviewer output.

available as per the author’s keyword analysis, and a separate group represents each cluster. Out of all keywords, ‘financial constraint’ has attracted the highest attention of the investment-cash flow sensitivity topic researchers. The details of top keywords with their frequencies and total link strength are provided in Table 7.

To answer RQ4, i.e., what the status of collaboration among the authors in the ICFS domain is, we analyzed the authors’ collaboration network. Collaboration among researchers represents intellectual association in scientific research.^[60] Figure 8 indicates that prominent authors in terms of collaborative effort are Colombo M, Croce A, and Guerini M from Italy, Khurana I, Martin X and Pereira R, from USA. Thus, it can be inferred that most of the collaborative efforts are confined to author’s own nations. These results also align with the findings of.^[59] on cash holdings domain that “research concentrates around a few authors, and most of the nodes appear to form a network of two”. The co-authorship network on investment-cash flow sensitivity can thus be considered a closed network, highlighting few interactions among authors. Collaboration among researchers is indispensable for developing a research field;^[55] hence, more cross-country collaborations are desirable in the ICFS area.

Figure 8:
Co-authorship network on investment-cash flow sensitivity. Source: Authors’ compilation through VOSviewer output.

According to Small (1973),^[61] “co-citation is the number of times two articles are cited together.” It means two papers are appearing together in the reference list of a single paper. It also indicates that the two papers are related and belong to the same study area.^[62] The co-citation analysis is one of the prominent analyses in the bibliometric network analysis, highlighting the intellectual structure.^{[45,55,57,63–67]} This analysis is also worthwhile for illuminating a study area’s developments, directions, and structure.^[55] The sixth research question (RQ 6: What is the intellectual structure of current research in this field?) of our study can be studied by using co-citation and content analysis. The co-citation analysis consists of a set of nodes and edges; nodes symbolize the referred papers, while edges indicate the links that demonstrate the co-occurrence of nodes.^[65] For co-citation analysis, we used Biblioshiny software, where the top 100 cited documents were analyzed, and the minimum link strength was 2, which is the default function of Biblioshiny. While visualizing the co-citation map,the software generated a map that is too complex to understand and is not presented in the manuscript. However, the Biblioshiny also provides results in a tabular form, which is easy to understand, and we have considered the tabular results for analysis.

Cluster analysis is one of the critical elements in co-citation analysis. Cluster analysis facilitates the identification of collaboration patterns and interrelations among co-citation analyses. Using ‘Biblioshiny,’ we got 4 clusters in the domain of investment-cash flow sensitivity. The sizes of clusters vary from one another. Cluster 1 is the largest cluster consisting of 36 documents, followed by cluster 2 (28 documents), cluster 3 (13 documents), and cluster 4 (11 documents).

To identify the intellectual structure of research on the ‘investment-cash flow sensitivity’ (RQ-6), we have conducted a content analysis of each of the four clusters obtained from co-citation analysis. To determine the research emphasis for each cluster, we have identified the top 10 lead papers in each cluster by following the methodology of Kumar (2020).^[68] The lead papers usually provide an overall description of each cluster.^[69] According to Xinhan Xu et al.^[58] a Page-Rank measure can be used for this purpose. In a co-citation network, “the PageRank algorithm takes into account how many times a research paper is co-cited with other research papers (the popularity measure) and how many times it is co-cited with highly co-cited papers (the prestige measure)”. Most of the papers in this study with a high PageRank also have a high citation count. We have calculated PageRank through Biblioshiny software to identify lead papers in each cluster. A comprehensive content-based narrative of 40 articles (10 from each cluster) is presented below.

This cluster, which underlines the financial constraints in 36 articles, is the biggest cluster. This cluster focuses on the use of “investment-cash flow sensitivity” as a metric of financial constraint. The cluster demonstrated that there are many frictions in the actual world and that there is no ideal capital market. According to Altaf and Ahmad.^[70] and Carreira and Silva.^[66] information asymmetry, taxes, transaction costs, and agency costs all contribute to frictions magnified by the imperfect capital market. The cost of internal and external funding sources differs due to the imperfection of the capital market.^{[19,20,71,72]} financial constraints and unconstraint conditions for the firm result from this cost differential between external and internal financing. Therefore, a financial constraint is a situation in which a firm is prevented from obtaining funding from outside sources, which prevents it from making the best investment choices.^[73,74] In a study on ICFS, Fazzari et al..^[75] argued that firms with high investment-cash flow sensitivity are financially constrained firms because they primarily rely on internal funds for their investments and limit their use of external funds because doing so is expensive. Furthermore, the investigations proved that constrained firms are young, small in size, and pay lower dividends. After categorizing firms based on a variety of firm-specific parameters such as firm size, age, dividend payment status, etc, that are intended to evaluate the degree of financial constraints faced by firms.

This cluster is the second largest, covering 28 articles emphasizing information asymmetry. Asymmetric information is a significant factor responsible for positive ICFS.^[76] In the seminal work of Myers and Majluf (1984),^[14] it is observed that insiders in the firm and informed current investors intend to transfer wealth from new shareholders to existing investors. Because of the information asymmetry, new shareholders expect insiders to raise fresh capital when the latter is overvalued. This contrary selection infers that managers and firms face a premium on external financing, making a wedge between the cost of internal and external funds. Thus, the firm meets financing constraints, forcing it to follow credit rationing; as a result, the firm restricts itself from external borrowing.^[77] Information asymmetries hinder the firm’s investment with growth opportunities, which results in the form of under-investment. In this situation, investment fluctuates with a firm’s investment opportunities and changes in its cash flow availability.

The importance of cash flow in investment decisions known as investment-cash flow sensitivity, documented by Fazzari et al. .,^[75] has triggered a substantial interest among financial economics researchers to explore further the factors underlying such phenomenon. Out of such factors some prominent factors are highlighted in the literature, such as financial slack or cash holding behaviour of the firm, growth opportunities, firm size, age, dividend pay-out, asset tangibility, bond rating, etc.

Financial slack is used as a measure of internal liquidity, much like cash flow, and many immediately influence business investment. As was already said, several research shows that internal liquidity, in addition to having a direct impact on company investment, is a crucial component of investment-cash flow sensitivity because it reveals a business’s capacity to raise funds for projects without turning to the capital markets. Uncertainty exists about the relationship between internal liquidity stock metrics and cash flow sensitivity. According to certain research, businesses with significant cash are not at a liquidity disadvantage because they may utilize it to fund desirable projects.^[78] However, companies are not required to have substantial cash reserves on hand unless they anticipate a lack of internal liquidity and have trouble obtaining external financing. Higher amounts of financial slack may, therefore, signal possible liquidity issues.

For various reasons, the market-to-book ratio, utilized as a proxy for growth opportunities, is anticipated to be tied to ICFS. A survey by Graham and Harvey^[79] found that market-to-book ratios are a significant factor in deciding whether to issue shares of stock. These studies contend that these ratios can be used as indications of equity under and overvaluation. For instance, Loughran and Ritter^[80] find that equity issuers’ long-term performance has been below average. Like growth opportunities, it has been predicted that firm size will influence how sensitive investments are to cash flows. Raising money is projected to present greater challenges for smaller businesses. First, it is anticipated that their borrowing costs will be higher. Second, due to issues with adverse selection, they receive less analyst coverage and might find it harder to attract external sources of finance.^[14] Third, transaction costs for security-related concerns decrease with issue size, but these costs are probably higher for larger companies. Younger businesses may have a more significant gap between external and internal capital costs for similar reasons. As a result, it has been predicted that smaller and younger enterprises will exhibit greater ICFS. Yet in other research links, it is observed that large firms are exposed to a more dispersed ownership structure, a higher risk of overinvestment agency issues, and more flexibility in timing investments, which makes larger enterprises more sensitive to cash flow.^[81] As a result, it’s unclear how firm size and cash flow sensitivity relate to one another. Age is also one of the variables that moderate the link between investment and cash flow, just like size does. Since smaller and younger businesses should have more prospects for growth. Further, the dividend pay-out behaviour of the firm, such as low-paying dividend are considered as more ICFS while it also signals firms having future growth opportunities. Similar to that bond rating, asset tangibility also influences a firm’s creditworthiness, which is crucial for investment-cashflow sensitivity.

The history of the connection between investment and cash flow has been uneven. In the 1950s and 1960s, it was extensively researched.^[82] But following that, cash flow virtually vanished from the literature on investments until its resurgence in the 1980s due to the creation of models for asymmetric knowledge and an empirical breakthrough in 1988 by Fazzari, Hubbard, and Petersen (hereafter FHP). Using firm-level data, FHP (1988) calculated investment equations as a function of Tobin’s Q and cash flow. They discovered that enterprises more likely to experience financial restrictions tend to have investments that are more heavily influenced by cash flow, and they concluded that this was proof of information-driven inefficiencies in the capital market. Following FHP’s.^[75]study, there is a vast body of literature on the connection between cash flow and investment, many of which use comparable methods.

Nevertheless, it is debatable whether cash flow is essential for investing. According to some studies, the connection between cash flow and investment may result from the association between cash flow and missed or incorrectly estimated investment opportunities that are not considered by common measurements, like Tobin’s Q (hereafter Q). Numerous attempts have been made to determine whether cash flow still significantly impacts firms’ investment decisions even after alternative measures of investment opportunities are constructed.^[70,71] The use of Q is predicated on the notion that players in the equities market who are also forward-looking can catch forward-looking investment opportunities. The keystone of articles based on the Q-theory is securities prices and, by extension, financial markets’ assessments of investment prospects. However, using Q immediately creates tension when information asymmetries exist in the capital markets. Suppliers of external funds cannot evaluate enterprises’ investment potential in such situations appropriately, and there may be gaps in the company’s insider and outsider information sets. Q will only record opportunities that are evaluated by outsiders. Cash flow may have a large impact on investment merely because it is connected with insiders’ assessments of opportunities, which Q does not account for. However there is not significant attention has been made on capturing the insiders investment oppertunities which strongly contributes scope for future research.

For better understanding, a comparative analysis of each cluster based on research fronts is provided in Table 8.

By this comprehensive review of the literature, we find several aspects that impede growth in the field of ICFS despite its continuing progress.

Collaboration among academics enhances researcher efficiency, lowers costs associated with conducting research, and facilitates better quality research.^[55] However, in the case of ICFS, it is found that the number of publications in the respective field is less, there are few collaborations among countries and universities, etc. Hence, increased international cooperation is highly desirable to create a globally recognized framework for ICFS.

Some researchers prefer multi-industry datasets to generalize the study of ICFS across the sectors. However, industries may vary in the nature of products and services, working durations, asset allocations, and other factors that affect the mode of financing and its investment approach. Hence, Sector-specific ICFS studies need more attention, as the investment and financing pattern varies from industry to industry. Further sector-specific studies also help in developing the right investment plan and mode of finance. In addition, comparison among various sub-industries (intra-industries comparison) like pharmaceuticals, cement, fast-moving consumer goods, etc., under the manufacturing sector will add more insight to the existing body of knowledge. Similarly, cross-industry studies will help in taking comparative studies. However, most of the studies on ICFS are manufacturing firm-centric, and very few studies made intra-industry comparisons.

Cross-country studies promote more collaboration and universal findings.^[65] However, as per the co-author analysis in ICFS, we have found a lack of cross-country studies.

The SME (Small and Medium Enterprises) sector is one of the thriving sectors in any economy and contributes significantly to Gross Domestic Product (GDP).^[83,84] Yet, there is no significant work on ICFS by taking small firms. Very few studies have been attempted on ICFS, as most of the studies are confined to larger firms.

The findings of this analysis have several implications for both researchers and practitioners. Firstly, the increasing interest in ICFS research accentuates its significance in understanding firm behavior, especially during economic uncertainty. Secondly, concentrating research efforts within specific countries and institutions requires greater collaboration to foster a more inclusive and diverse research environment. Thirdly, identifying top journals and influential documents provides valuable guidance for researchers seeking to publish and engage with the latest developments in ICFS literature. Overall, this analysis contributes to a better understanding of the current landscape of ICFS research and highlights avenues for future exploration and collaboration.

Regardless of the increasing interest among academics in studying “cash flow sensitivity,” systematic reviews and thorough evaluations in this field have fallen short. This paper attempts to fill a knowledge gap in the literature on ICFS by identifying and assessing the research progress. For analysis, 402 English-language documents were extracted from the Scopus and Web of Science databases spanning more than three decades (1989-2022). The annual publication trend indicates a surge in interest since 2008-2009, potentially driven by the global financial crisis. This trend suggests that scholars have increasingly focused on understanding firms’ economic behavior during crises, highlighting the relevance of ICFS. Identifying three stages in the evolution of research further underscores the growing attention to this area. Top contributing journals, such as the “Journal of Banking and Finance,” are crucial in disseminating research in this field, indicating their significance as platforms for scholarly discourse.Leading countries like China, the USA, and the UK dominate research efforts, with opportunities for collaboration and exploration in under-researched regions. The analysis of leading organizations and authors highlights vital contributors and their impact on the literature. Co-authorship and co-citation analyses reveal collaboration patterns and intellectual structure within the field. Additionally, content analysis of clusters indicates prominent themes such as financial constraints, information asymmetry, firm characteristics, and investment opportunities, providing insights into the direction of research and potential areas for future exploration. Collectively, these findings contribute to a deeper understanding of ICFS and its implications for financial decision-making and policy development.

From the study, it is found that there are many dry areas in the investment-cash flow sensitivity literature which can be researched in the future. Out of such areas, one of the first areas is investment-cash flow sensitivity during the COVID-19 pandemic. As we know, the COVID-19 pandemic has impacted trade and commerce around the globe, and it is obvious that it affects ICFS. Such impact can vary due to the status of economies, Govt. support, and density of Covid-19 infection in that region. Hence, this area can be studied in the future. Likewise, SMEs (Small and Medium Enterprises) are playing a crucial role in the economy and now they have enlarged their financing sources from traditional financing institutions like banks to SME exchange. However, no significant attention has been taken regarding SMEs’ cash flow sensitivity, which can be addressed in future research.

Further, in the globalized world, every firm is exposed to the fluctuation of macroeconomic factors, geopolitical risk, and political uncertainty, which may affect its investment cash flow sensitivity and can be studied in the future. Similarly, most of the cash flow sensitivity literature studies are confined to long-term investment. At the same time, very little attention has been paid on short-term or Working capital investment decisions and cash flow, which can be explored in future research. Though investment dependency on cash flow has been studied in earlier studies, whether a linear or nonlinear association exists between them has not been given proper attention. The optimal investment-cash flow sensitivity is also one of the unexplored areas in the cash flow sensitivity literature field. In the present juncture, a firm’s performance is not judged by only its financial performance; instead, environmental, social, and governance parameters are considered as new indicators of a firm’s sustainable performance. However, there is a poor attention has been given to such parameters in the cash flow sensitivity literature, which can be addressed in future research.