Investment Cash Flow Sensitivity under Behavioural Corporate Finance: A Literature Review via the Classification Scheme

In this paper we present a literature review and classification scheme for investment cash flow sensitivity under behavioural corporate finance. The former consists of all published articles between 2000 and 2011 in different journals that are appropriate outlets for BCF research. The articles are classified and results of these are presented and analysed. The classification of article was based on nine criteria; journals, date of publication, paper nature, the context of the study adopted behavioural biases, adopted approach, behavioural biases measurement, the adopted assumption, econometric approach and empirical findings. Literature on investment cash flow sensitivity under behavioural corporate finance isn't well developed. In fact, the behavioural corporate finance is very young (Fairchild, 2005). Our review shows that behavioural biases (optimism and overconfidence) have an explanatory power and they can succeed to explain the dependence of corporate investment on the internal cash flow availability. This result is protected at the most of cases by the some restrictive assumptions: the absence of agency costs and asymmetric information. Based on the review, suggestions for future research are likewise provide.