The triple‐edged sword of sensitivity of sales, cash flows, and debt to investments: Venture survival and capital investments

Abstract

Drawing on reliable financial performance data of 192,855 venture-year observations, representing a total of 66,174 ventures with 8.13% of the ventures failing (5380 ventures), we find that neither sales-investment sensitivity nor cash-flowinvestment sensitivity is associated with venture survival. However, debt-investment sensitivity lowers the hazard of failure. Sales-investment sensitivity and debtinvestment sensitivity under munificence and dynamism lower the hazard of failure.However, cash-flow-investment sensitivity at high levels of dynamism or munificence does not influence the hazard of failure. The effect sizes are small but nonetheless meaningful. The findings have implications for ventures attempting to match performance and capital structure with investment.

Strategy creation behaviour and “last gasp” digitalization as predictors of sales performance and cash flow

“…In particular, in the face of uncertainty, SMEs seek marginal gains by realigning the resources and activities contributing to sales performance (Tremblay et al, 2003;Bhattacharya and Wright, 2005). However, as Patel et al (2023) argue, beyond sales, cash flow is a superior measure of adequate profit margin. This is salient because, as Hovakimian and Hovakimian (2009) and Fuertes-Call en et al (2022) affirm, cash flow investments enhance firms' survival by increasing production capability and market exploitation opportunities.…”

“…, 2003; Bhattacharya and Wright, 2005). However, as Patel et al. (2023) argue, beyond sales, cash flow is a superior measure of adequate profit margin.…”