Motivated by ongoing debates on investment-cash flow sensitivity (ICFS), its relation to firm-level financial constraints and its documented decline in the U.S., we investigate the determinants of cross-country and time-series variation in ICFS. Using firm-level data across 45 countries for the 1991–2010 period, we document a strong decline in ICFS for both developed and emerging countries. Results indicate that changes in financial development and shifts in investment towards liquid and intangible assets are important in explaining the patterns in ICFS. However, unlike ICFS, the cash flow sensitivity of cash (CCFS) shows no decline over time, which is consistent with inter-temporal optimization in cash-retention.