Is Investment-Cash Flow Sensitivity a Good Proxy for Financial Constraints? Evidence from Listed Companies in Manufacturing Sector of China

2011 ◽  
Author(s):  
Jianqiang Guo ◽  
Ying Sun ◽  
Shengli Suo
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
Manufacturing Sector ◽  
Listed Companies ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
Good Proxy

Financial constraints and cash–cash flow sensitivity

2014 ◽  
Vol 47 (10) ◽  
pp. 1037-1049 ◽  
Author(s):  
José López-Gracia ◽  
Francisco Sogorb-Mira
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity

Investment-cash flow sensitivity and financial constraints: evidence from Pakistan

2016 ◽  
Vol 5 (3) ◽  
pp. 403-423 ◽  
Author(s):  
Yasir Riaz ◽  
Yasir Shahab ◽  
Robina Bibi ◽  
Shumaila Zeb
Keyword(s):  
Panel Data ◽  
Financial Markets ◽  
Cash Flow ◽  
Market Integration ◽  
Financial Constraints ◽  
Generalized Method Of Moments ◽  
Listed Companies ◽  
Developed Countries ◽  
Content Type ◽  
Cash Flow Sensitivity

Purpose The purpose of this paper is to provide new insights about investment-cash flow sensitivities (ICFS) as a representative of financial constraints, by examining panel data consisting of 288 listed firms in Pakistan. Design/methodology/approach This study uses a panel data methodology and first difference generalized method of moments to control the problems of heterogeneity and endogeneity. By five different criteria, estimations are made for full and pre-classified sub-samples. Sargan test and Arellano-Bond serial correlation statistic are used for identification and validation of instruments and model. Findings According to the results, the ICFS has increased monotonically with the level of financial constraints. Further, the results depict that ICFS for the constrained group is much higher as compared to the unconstrained group. Overall, the result illustrates positively significant ICFS. Practical implications This study confirms signs of imperfections in the capital market, which leads to financial markets inaccessibility preceded by high under-investment costs and low social and economic development. Thus, proper policy designing and instigation are necessary for the subsidies, taxation, and foreign direct investment and later for financial market development and promotion of private corporate investment. Originality/value Previous studies have mostly focused on developed countries where large listed companies work in well-developed financial markets and do not face severe financial constraints because of the greater market integration (Bekaert et al., 2011, 2013) and superior investor protection laws (Djankov et al., 2008; La porta et al., 1998). However, this study focuses on listed companies from the emerging Pakistani market, which will bring forth the interesting aspects of ICFS and will enhance the existing literature effectively.

Financial constraints for investment in Brazil

2014 ◽  
Vol 10 (1) ◽  
pp. 73-92 ◽  
Author(s):  
Vicente Lima Crisóstomo ◽  
Félix Javier López Iturriaga ◽  
Eleuterio Vallelado González
Keyword(s):  
Panel Data ◽  
Euler Equation ◽  
Cash Flow ◽  
Financial Constraints ◽  
Emerging Market ◽  
Growth Opportunities ◽  
Content Type ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
Investment Models

Purpose – The purpose of this paper is to verify the existence of financial constraints for investment in Brazil, an emerging market with growing international visibility. Design/methodology/approach – Using panel data methodology and generalized method of moments (GMM), the paper estimates dynamic investment models based on the Euler equation and Tobin's q for a panel data set of 199 Brazilian non-financial firms for the time period 1995-2006. Findings – Results show that Brazilian firms face financial constraints since their investments depend on internally generated funds. Results are robust to different investment models based on the Euler equation, also controlling for growth opportunities. Significant investment-cash flow sensitivity has been found for the whole sample of firms. Subsamples of firms considered as under financial constraints, according to dividend payout and equity issuance policies, have higher investment-cash flow sensitivity. Investment-cash flow sensitivity of financially constrained firms in Brazil is higher than that in the UK and in Romania, a transition economy. Originality/value – The results extend empirical evidence of financial constraints in Brazil. The paper contributes to the literature by assessing the firms’ financial constraint status on an annual basis, and by using panel data methodology and GMM to estimate dynamic models of investment that take into account the proposals of the hierarchy of finance theory. In addition, the paper controls for growth opportunities. Capital market imperfections affect firm investment in Brazil and such effects are even stronger for financially constrained firms.

scholarly journals The role of financial constraints in the services sector: how different is it from manufacturing?

2016 ◽  
pp. 21-41 ◽  
Author(s):  
Filipe Silva ◽  
Carlos Carreira
Keyword(s):  
Cash Flow ◽  
Inverse Relationship ◽  
Financial Constraints ◽  
Manufacturing Sector ◽  
Services Sector ◽  
Developed Economies ◽  
Cash Flow Sensitivity ◽  
The Relationship ◽  
Two Sectors

Although the services sector has emerged as a major contributor to gross domestic product and employment in developed economies, very little attention has been paid to financial constraints faced by services firms. This paper represents a first attempt to model financial constraints in the services sector. In particular, we question the commonly accepted inverse relationship between firm size/age and financial constraints. To conduct our empirical tests, we estimate the Cash-Cash Flow Sensitivity using a large unbalanced panel of Portuguese firms. We also combine the recently developed Hovakimian-Hovakimian index of firm’s financial constraints with the sensitivity of cash stocks to cash-flow approach. Our results suggest that there are clear differences in financial constraints across the two sectors. First, firms operating in the services sector suffer from more severe financial constraints than those in manufacturing. Second, the relationship between size and financial constraints appears to be inverse in the case of the manufacturing sector, but not in services, for which we have U-shaped evidence. Finally, for the services sector we find some evidence suggesting an inverse relationship between age and financial constraints, while in manufacturing this relationship seems to be U-shaped.

scholarly journals BNDES loans and the financial constraints of Brazilian publicly traded companies

2020 ◽  
Vol 55 (4) ◽  
pp. 567-582
Author(s):  
Walter Eclache da Silva ◽  
Eduardo Kayo ◽  
Roy Martelanc
Keyword(s):  
Capital Structure ◽  
Cash Flow ◽  
Financial Constraints ◽  
Theoretical Perspective ◽  
Content Type ◽  
Flow Sensitivity ◽  
Multiplier Effect ◽  
Cash Flow Sensitivity ◽  
Development Banks

Purpose The purpose of this paper is to analyze whether companies that contracted loans from the Brazilian National Bank for Economic and Social Development (BNDES) between 2002 and 2014 were able to invest more than companies that did not. The literature on financial constraints, particularly that based on the investment-cash flow sensitivity model, is among the most studied and controversial in the area of finance, and the discussion on the role of development banks is equally controversial. Design/methodology/approach The main econometric model of this study was based on the investment-cash flow sensitivity model, with the incorporation of a binary variable that captures the role of the BNDES. This model is applied to a sample of companies listed on the B3 from 2002 to 2014. Findings This study shows that loans from the BNDES amplify the effects of cash flow on investments, generating a kind of credit multiplier. An important role of development banks is to reduce the financial constraints typical of developing countries. Research limitations/implications The use of the cash flow sensitivity model in companies that contracted loans from the BNDES is a relevant instrument to test the effect of the BNDES on companies with financial constraints. Practical implications The contracting of BNDES loans by companies can affect both capital structure and cash generation, particularly in companies or years in which there was financial constraint. Social implications Due to the nature of the BNDES as a development bank, there are ramifications in terms of the generation of employment and income inherent to the mission of this type of institution. Knowing the multiplier effect on the cash flow potential of companies has a direct impact on their preservation, enabling them to maintain and expand the supply of jobs. Originality/value This study is the first to integrate two important areas of study. From the theoretical perspective, this study provides evidence on the relationship between the BNDES and company financial constraints that open new avenues of research. From the managerial point of view, the evidence of the multiplier effect is highly important for the management of the capital structure and cash flow of companies.

Research on Excessive Investment with DEA Analysis for Chinese Listed Companies

2011 ◽  
Vol 225-226 ◽  
pp. 1208-1211 ◽  
Author(s):  
Jing Long ◽  
Yan Xi Li
Keyword(s):  
Cash Flow ◽  
Capital Market ◽  
Growth Function ◽  
Listed Companies ◽  
Flow Sensitivity ◽  
Chinese Listed Companies ◽  
Cash Flow Sensitivity ◽  
Dea Analysis ◽  
Dea Method ◽  
Q Values

This paper measured level of corporate over-investment with DEA method. In this paper, the empirical research tested the excessive levels of investment in listed companies. Studies have been shown by investment-cash flow sensitivity and growth function in metrics when excessive levels of investment in listed companies in China. Tobin Q values are not objective enough in China's capital market, while DEA method can be more scientific measure of Chinese listed companies for the level of over-investment.

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