Hi Niko,
Thank you for your message.
I am treating the cash flow and sales ratio as endogenous cause I am including
their contemporrenous values in the estimation equation. So, while the Cash flow
ratio at time t affects the firm's investment ratio at time t, it could be also
the case that invetsment at time t is affceting the cash flow at time t .
So there is a potential problem of reverse causality. Same applies to sales
ratio.
Thanks, Dahlia
Dahlia Anwar El- Hawary
Consultant
Financial Sector Operations and Policy Department
World Bank
Tel: 202 473 5238
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