Investment-internal capital sensitivity, investment-cash flow sensitivity and dividend payment

2019 ◽  
Vol 9 (2) ◽  
pp. 183-207 ◽  
Author(s):  
Xiaodong Xu ◽  
Huifeng Xu
Keyword(s):  
Financial Constraints ◽  
Agency Cost ◽  
Financing Constraints ◽  
Dividend Payment ◽  
Content Type ◽  
Investment Expenditure ◽  
Internal Capital ◽  
Empirical Tests ◽  
The Impact ◽  
The Relationship

Purpose On the basis of principal-agent and financing constraints theories, the purpose of this paper is to construct a unified research framework via mathematical models and to provide a logical and consistent explanation of the contradictory discovery of the relationship between dividend payment and I-CFO in the previous literature. Design/methodology/approach Establishing the economic mathematical models, this paper uses the comparative static analysis to figure out the equilibrium results, to further testify the conclusions, the authors initiate the empirical tests to make the discussion more realistic. Findings The authors observe that overinvestment caused by agency problems is the primary reason for I-C sensitivity when the investment expenditure is less than the internal capital; dividend payout suppresses the overinvestment caused by the agency problem, thus alleviating the investment’s dependence on the internal capital. However, underinvestment caused by the financing constraints is the primary cause of I-C sensitivity when the investment expenditure is greater than the internal capital. The payment of cash dividends increases the investment shortage caused by the financing constraints, thus increasing the sensitivity. Further, the authors explore the impact of dividend payments on I-CFO sensitivity. They argue that dividend payment is not an appropriate measure of financing constraints. Both I-CFO sensitivity and I-C sensitivity are functions of agency cost and information cost. Research limitations/implications This study provides a logical and consistent explanation of the contradictory discovery of the relationship between dividend payment and I-CFO in the previous literature and provides a clear framework and reference for future studies on the impact of financial constraints, agency cost on the investment’s dependence on the internal capital. Practical implications The theoretical model of this paper supports this differentiated mandatory dividend policy and provides reference and evidence for China's financing policies and dividend distribution policies. Originality/value This study theoretically and empirically analyzes and verifies the roles of agency cost and financial constraints on the determinants of I-C sensitivity for the first time. First, different from earlier literature, this paper puts forward I-C sensitivity as a new measure of investment’s dependence on internal capital, making the measurement more accurate. In the case of a firm with positive liquidity reserves, using the I-CFO sensitivity as a measure of external financing constraints could overestimate the firm’s financial constraints. Second, by constructing an economic static analysis framework, this study analyzes how I-C and I-CFO sensitivities change with the agency cost, the financing constraints and the dividend payment ratio. The research provides a basic framework and explanation on the contradictions of the earlier literature. The results are supposed to serve as a foundation for estimations of investment’s dependence on internal capital and should be embedded in general empirical tests in future research.

The impact of artificial intelligence (AI) finance on financing constraints of non-SOE firms in emerging markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jun Shao ◽  
Zhukun Lou ◽  
Chong Wang ◽  
Jinye Mao ◽  
Ailin Ye
Keyword(s):  
Emerging Markets ◽  
Emerging Market ◽  
Financing Constraints ◽  
Content Type ◽  
Emerging Market Countries ◽  
Finance Development ◽  
Cash Flow Sensitivity ◽  
The Impact ◽  
The Relationship ◽  
Practical Implications

PurposeThis study investigates the impact of AI finance on financing constraints of non-SOE firms in an emerging market.Design/methodology/approachUsing a sample of non-SOE listed companies in China from 2011 to 2018, this research employs the cash–cash flow sensitivity model to examine the effect of AI finance on financing constraints of non-SOE firms.FindingsWe find that the development of AI finance can alleviate the financing constraints of non-SOE firms. Further, we document that such effect is more pronounced for smaller firms, more innovative firms and firms in developing areas.Practical implicationsThis study suggests that emerging market countries can ease the financing constraints of non-SOE firms by promoting AI finance development.Originality/valueThis study, to the best of our knowledge, is the first one to explore the relationship between AI finance development and financing constraints of non-SOE firms in emerging markets.

Reconsidering the role of Tobin’s Q

2015 ◽  
Vol 32 (2) ◽  
pp. 222-234 ◽  
Author(s):  
Mark J. Holmes ◽  
Nabil Maghrebi
Keyword(s):  
Error Correction ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Content Type ◽  
Investment Expenditure ◽  
Long Run ◽  
The Impact ◽  
The Relationship ◽  
Long Run Equilibrium ◽  
Real Investment

Purpose – The purpose of this study is to investigate nonlinearities in the behavior of investment expenditure. Conventional wisdom suggests that Tobin’s Q criterion is an important explanation of investment behaviour that bridges the financial and real sides of the economy. However, the empirical evidence in support of Q as a means of explaining aggregate business investment is rather weak. We answer a number of questions about the relationship between investment expenditure and Q. In particular, is the relationship governed by non-linearities? If so, what is the nature of the non-linearities present? Design/methodology/approach – The rationale for paying closer attention to non-linearities is based on the presence of information asymmetries and possible dependence of adjustments on non-linearities with respect to factors such as fixed costs, threshold effects and irreversibility, which are entertained in the investment literature. Using the non-linear vector error-correction model procedure advocated by Hansen and Seo, we show that in the context of the US economy, investment has a long-run relationship with Q that is based on threshold error correction. Findings – There are asymmetries present with respect to error correction or the speed of adjustment towards long-run equilibrium. We find that investment expenditure only responds significantly to long-run disequilibrium from Q during a particular regime. Such a regime is characterised by long-run disequilibrium based on high or rising investment expenditure compared with a relatively weak stock market. Originality/value – The authors provide new insights into the relationship between Tobin’s Q and real investment. In contrast to previous work, they find that error correction based on the adjustment of real investment is regime-specific and function of the size of departures from long-run equilibrium. The tests also allow for the identification of periods when error correction has occurred. Not only are these insights significant for future research on financial crises, market volatility and the impact of debt, but for policymaking purposes as well.

What determines firms’ zero-leverage policy in India?

2016 ◽  
Vol 42 (12) ◽  
pp. 1138-1158 ◽  
Author(s):  
Biswajit Ghose ◽  
Kailash Chandra Kabra
Keyword(s):  
Capital Structure ◽  
Developed Countries ◽  
Dividend Payment ◽  
Content Type ◽  
Macroeconomic Conditions ◽  
Governance Practices ◽  
Database Size ◽  
The Impact ◽  
First Time ◽  
The Relationship

Purpose This paper studies the relationship between characteristics of firms’ and their propensity to maintain zero-leverage (ZL). Its second objective is to examine the impact of macroeconomic conditions on firms’ ZL policy. Finally, the purpose of this paper is to explore the underlying motives behind eschewing debt for constrained and unconstrained firms. Design/methodology/approach The paper uses data of 2001 non-financial and non-utility listed Indian firms over a period of 2005-2013 from Capitaline database. Size quintiles and dividend payment status have been used to differentiate between constrained and unconstrained firms. It uses t-test and logistic regression to draw inferences. Findings In general, firms pursuing ZL policy are financially constrained. However, there is a sub-section of ZL firms found unconstrained with high profitability. They appear to be “self-sufficient” to meet their financing requirements. Finally, macroeconomic conditions are counter cyclically related to firms’ ZL policy. Research limitations/implications The impact of corporate governance practices on firms’ ZL policy could not be examined due to data inadequacy. However, financial constraints and the presence of ZL firms come out as important factors to be paid special attention for future empirical works on capital structure. Practical implications The findings can be useful for financial managers in designing capital structure on the basis of their financial position. Originality/value Previous studies on ZL phenomenon are based on developed countries. The findings of previous studies conducted for developed countries get revalidated for the first time in the context of an emerging economy like India.

Financial leverage, debt maturity, future financing constraints and future investment

2020 ◽  
Vol 13 (4) ◽  
pp. 613-634
Author(s):  
Ehsan Poursoleiman ◽  
Gholamreza Mansourfar ◽  
Sazali Abidin
Keyword(s):  
Debt Maturity ◽  
Financing Constraints ◽  
Financial Leverage ◽  
Short Term ◽  
Content Type ◽  
Mediating Role ◽  
The Impact ◽  
The Relationship ◽  
Moderating Role

Purpose This paper aims to investigate the impact of debt maturity on the relationship between financial leverage and future financing constraints. Moreover, it attempts to analyze the moderating role of short-term debt and the mediating role of future financing constraints in the relationship between financial leverage and future investment. Design/methodology/approach To test the moderating role of debt maturity, all the observations are divided into two groups based on short-term debt to total debt ratio. Moreover, Sobel, Aroian and Goodman tests are used to analyze the mediating role of future financing constraints. The sample used in this research includes firms listed on the Tehran Stock Exchange from 2006 to 2018. Findings It is shown that financial leverage is inversely (positively) related to future financing constraints for firms with higher (lower) use of short-term debt and, short-term debt moderates the relation between financial leverage and future investment. The findings also indicate that future financing constraints carry the influence of financial leverage to future investment. Originality/value In an imperfect market where financing is not independent of investment, it is highly required to carry out some studies on the role of different financing scenarios in firms and their impacts on future financing and investment; therefore, this paper is conducted to address one of the most important issues in the capital market, which is almost the pioneer study in this field.

Working capital financing, firm performance and financial constraints

2019 ◽  
Vol 15 (4) ◽  
pp. 464-477 ◽  
Author(s):  
Nufazil Altaf ◽  
Farooq Ahmad
Keyword(s):  
Firm Performance ◽  
Financial Constraints ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Working Capital ◽  
Content Type ◽  
Capital Financing ◽  
Financing Performance ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between working capital financing and firm performance for a sample of 437 non-financial Indian companies. In addition, this study examines the impact of financial constraints on working capital financing–performance relationship. Design/methodology/approach The study is based on secondary financial data of 437 non-financial Indian companies obtained from Capitaline database, pertaining to a period of 10 years (2007–2016). This study employs two-step generalized method of moments techniques to arrive at results. Findings Results of the study confirm the inverted U-shape relationship between working capital financing and firm performance. In addition, the authors also found that the firms that are likely to be less financially constrained can finance greater proportion of working capital using short-term debt. Originality/value This study contributes to the scant existing literature by testing the impact of financial constraints on the relationship between working capital financing and firm performance, representing a typical emerging market in India.

Working capital management, firm performance and financial constraints

2017 ◽  
Vol 9 (3) ◽  
pp. 206-219 ◽  
Author(s):  
Nufazil Altaf ◽  
Farooq Shah
Keyword(s):  
Firm Performance ◽  
Method Of Moments ◽  
Financial Constraints ◽  
Generalized Method Of Moments ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between working capital management and firm performance for a sample of 437 non-financial Indian companies. In addition, this paper examines the impact of financial constraints on working capital management-performance relationship. Design/methodology/approach This study is based on secondary financial data of 437 non-financial Indian companies obtained from CAPITALINE database, pertaining to a period of ten years. This study employs the two-step generalized method of moments (GMM) technique to arrive at results. Findings Results of the study confirm the inverted U-shape relationship between working capital management and firm performance. In addition, the authors also found that the firms that are likely to be more financially constrained have lower optimal working levels. Originality/value Unlike prior studies, which found a linear relationship between working capital management and firm performance, this study provides newer evidence for an inverted U-shaped relation between investment in working capital and firm performance in India. In addition, this study also tests the impact of financial constraints on this relationship. In contrast to the prior studies, this study uses GMM to control the potential problems of endogeneity.

When do job insecure employees adapt to change?

2019 ◽  
Vol 25 (3) ◽  
pp. 271-286 ◽  
Author(s):  
Kristi N. Lavigne ◽  
Victoria L. Whitaker ◽  
Dustin K. Jundt ◽  
Mindy K. Shoss
Keyword(s):  
Job Insecurity ◽  
Small Sample ◽  
Adaptive Performance ◽  
Work Behaviors ◽  
Content Type ◽  
Work Tasks ◽  
Main Effect ◽  
Low Levels ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between job insecurity and adaptive performance (AP), contingent on changes to core work tasks, which we position as a situational cue to employees regarding important work behaviors. Design/methodology/approach Employees and their supervisors were invited to participate in the study. Supervisors were asked to provide ratings of employees’ AP and changes to core tasks; employees reported on job insecurity. Findings As predicted, changes to core tasks moderated the relationship between job insecurity and AP. Job insecurity was negatively related to AP for those experiencing low levels of change, but was not related to AP for those experiencing high levels of change. Counter to expectations, no main effect of job insecurity was found. Research limitations/implications This study employed a fairly small sample of workers from two organizations, which could limit generalizability. Practical implications The study identifies changes to core tasks as a boundary condition for the job insecurity–AP relationship. Findings suggest that organizations may not observe deleterious consequences of job insecurity on AP when changes to core tasks are high. Originality/value Few researchers have examined boundary conditions of the impact of job insecurity on AP. Furthermore, inconsistent findings regarding the link between job insecurity and AP have emerged. This study fills the gap and expands upon previous research by examining changes to core tasks as a condition under which job insecurity does not pose an issue for AP.

Racial dissimilarity and diversity climate effect organizational identification

2016 ◽  
Vol 35 (5/6) ◽  
pp. 314-327 ◽  
Author(s):  
Brooklyn Cole ◽  
Raymond J. Jones ◽  
Lisa M. Russell
Keyword(s):  
Organizational Identification ◽  
Turnover Intentions ◽  
Ordinary Least Squares ◽  
Important Variable ◽  
Hierarchical Regression ◽  
Diversity Climate ◽  
Climate Effect ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to empirically examine the relationship between psychological diversity climate (PDC) and organizational identification (OID) when influenced by racial dissimilarity between the subordinate and supervisor. Design/methodology/approach Ordinary least squares hierarchical regression analysis was run for hypotheses testing. Findings Three of the four hypothesized relationships were supported. Support was found for the direct relationship between PDC and OID. The moderator race was significant thus also supported. The moderator of dissimilarity was not supported. Finally the three-way interaction with race and dissimilarity was supported. Practical implications OID is an important variable for overall organizational success. OID influences a wealth of organizationally relevant outcomes including turnover intentions. Considering higher turnover exists for minority employees, understanding how diversity climate perceptions vary by employee race and therefore impact OID differently, helps managers when making decisions about various initiatives. Originality/value This study is the first the authors know of to investigate the impact of dissimilarity on the PDC-OID relationship.

The impact of executives’ perceptions of environmental threats and organizational slack on innovation strategies

2016 ◽  
Vol 7 (2) ◽  
pp. 216-230 ◽  
Author(s):  
Chengyuan Wang ◽  
Biao Luo ◽  
Yong Liu ◽  
Zhengyun Wei
Keyword(s):  
Cognitive Theory ◽  
Environmental Changes ◽  
Ordinary Least Squares ◽  
Organizational Slack ◽  
Least Squares Regression ◽  
Content Type ◽  
Environmental Threats ◽  
Innovation Strategies ◽  
The Impact ◽  
The Relationship

Purpose The paper aims to study the relationship between executives’ perceptions of environmental threats and innovation strategies and investigate the moderating effect of contextual factor (i.e. organizational slack) on such relations. It proposes a dualistic relationship between executives’ perceptions of environmental threats and innovation strategies, in which different perceptions of environmental threats will lead to corresponding innovation strategies, and dyadic organizational slack can promote such processes. Design/methodology/approach The paper is based on a survey with 163 valid questionnaires, which were all completed by executives. Hierarchical ordinary least-squares regression analysis is used to test the hypotheses proposed in this paper. Findings The paper provides empirical insights about that executives tend to choose exploratory innovation when they perceive environmental changes as likely loss threats, yet adopt exploitative innovation when perceiving control-reducing threats. Furthermore, unabsorbed slack (e.g. financial redundancy) positively moderates both relationships, while absorbed slack (e.g. operational redundancy) merely positively influences the relationship between the perception of control-reducing threats and exploitative innovation. Originality/value The paper bridges the gap between organizational innovation and cognitive theory by proposing a dualistic relationship between executives’ perceptions of environmental threats and innovation strategies. The paper further enriches innovation studies by jointly considering both subjective and objective influence factors of innovation and argues that organizational slack can moderate such dualistic relationship.

Leader positive humor and organizational cynicism: LMX as a mediator

2014 ◽  
Vol 35 (4) ◽  
pp. 305-315 ◽  
Author(s):  
Panagiotis Gkorezis ◽  
Eugenia Petridou ◽  
Panteleimon Xanthiakos
Keyword(s):  
Mediating Effect ◽  
Hierarchical Regression ◽  
Public Employees ◽  
Cross Sectional ◽  
Content Type ◽  
Organizational Cynicism ◽  
Member Exchange ◽  
Sectional Analysis ◽  
The Impact ◽  
The Relationship

Purpose – Leader-member exchange (LMX) has been proposed as a core mechanism which accounts for the impact of various antecedents on employee outcomes. As such, the purpose of this paper is to examine the mediating effect of LMX regarding the relationship between leader positive humor and employees’ perceptions of organizational cynicism. Design/methodology/approach – Data were collected from 114 public employees. In order to examine the authors’ hypotheses hierarchical regression analysis was conducted. Findings – As hypothesized, results demonstrated that LMX mediates the relationship between leader positive humor and organizational cynicism. Research limitations/implications – Data were drawn from public employees and, therefore, this may constrain the generalizability of the results. Also, the cross-sectional analysis of the data cannot directly assess causality. Originality/value – This is the first empirical study to examine the mediating effect of LMX in the relationship between leader humor and employees’ perceptions of organizational cynicism.

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