scholarly journals The source of investment cash flow sensitivity in manufacturing firms: is it asymmetric information or agency costs?

2016 ◽  
Vol 19 (3) ◽  
Author(s):  
Daniel Makina ◽  
Letenah Ejigu Wale
Keyword(s):  
Asymmetric Information ◽  
Cash Flow ◽  
Agency Costs ◽  
Manufacturing Firms ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity

scholarly journals The source of investment cash flow sensitivity in manufacturing firms: Is it asymmetric information or agency costs?

2016 ◽  
Vol 19 (3) ◽  
pp. 388-399 ◽  
Author(s):  
Daniel Makina ◽  
Letenah Ejigu Wale
Keyword(s):  
Corporate Governance ◽  
Asymmetric Information ◽  
South African ◽  
Cash Flow ◽  
Agency Costs ◽  
Small Firms ◽  
Manufacturing Firms ◽  
Institutional Setting ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity

In the literature, positive investment cash flow sensitivity is attributed to either asymmetric information induced financing constraints or the agency costs of free cash flow. Using data from a sample of 68 manufacturing firms listed on the South African JSE, this paper contributes to the literature by investigating the source of investment cash flow sensitivity. We have found that asymmetric information explains the positive investment cash flow sensitivity better than agency costs. Furthermore, asymmetric information has been observed to be more pronounced in low-dividend-paying firms and small firms. Despite South Africa’s having a developed financial system by international standards, small firms are seen to be financially constrained. We attribute the absence of investment cash flow sensitivity due to agency costs to good corporate governance of South African listed firms. Thus the paper provides further evidence in support of the proposition in the literature that the source of investment cash flow sensitivity may depend on the institutional setting of a country, such as its corporate governance.

CSR, agency costs and investment-cash flow sensitivity: a mediated moderation analysis

2017 ◽  
Vol 43 (3) ◽  
pp. 299-312 ◽  
Author(s):  
Marwa Samet ◽  
Anis Jarboui
Keyword(s):  
Cash Flow ◽  
Agency Costs ◽  
Data Set ◽  
Content Type ◽  
Mediated Moderation ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
Internal Funds ◽  
Investment Spending

Purpose The purpose of this paper is to document the relation between investment-cash flow sensitivity and a firm’s engagement in corporate social responsibility (CSR) activities in European context. Specifically, this paper aims to empirically examine how CSR moderates the sensitivity between investment spending and firm internal funds. Design/methodology/approach The Euler equation technique approach is applied to test the sensitivity of investment to internally generated funds for a panel data set of 398 European companies listed in the STOXX Europe 600 during 2009-2014. Furthermore, a mediated moderation model is developed in order to examine the moderating role of CSR in the investment-cash flow sensitivity, as well as the mediating role of agency costs on the moderation effect of CSR. Findings The results show that CSR performance weakens the sensitivity of investment to internal funds; agency costs of free cash flow mediate the negative moderating effect of CSR on investment-cash flow sensitivity. Thus, this study demonstrates empirically that firms with socially responsible practices are better positioned to obtain financing in the capital markets through reducing market frictions as well as agency costs. Practical implications Firms are invited to engage more in CSR activities that reduce agency conflicts between management and shareholders. Originality/value The originality of this paper consists in proposing the establishment of both direct and indirect link between CSR and investment-cash flow sensitivity.

CEO's education and investment–cash flow sensitivity: an empirical investigation

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gaurav Gupta ◽  
Jitendra Mahakud ◽  
Vivek Verma
Keyword(s):  
Cash Flow ◽  
Technical Education ◽  
Generalized Method Of Moments ◽  
Financial Education ◽  
Educational Background ◽  
Manufacturing Firms ◽  
Content Type ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
The Impact

PurposeThe purpose of this study is to examine the impact of financial and technical education of chief executive officer (CEO) on investment–cash flow sensitivity (ICFS) of Indian manufacturing firms.Design/methodology/approachThe study uses the dynamic panel data model and more specifically, the system-generalized method of moments (GMM) technique to investigate the effect of CEOs' education on ICFS of Indian manufacturing firms during the period 1998–1999 to 2016–2017.FindingsThe study shows that financial (technical) education of CEOs does (not) affect ICFS. The results explain that the role of the CEO's education in ICFS is highly significant during the crisis period. The robustness test depicts that the influence of financial education on ICFS is less (more) for group-affiliated and large-sized firms (stand-alone and small-sized firms). Further, the CEO's education is significantly associated with corporate investment decisions.Research limitations/implicationsDue to the unavailability of the CEO's compensation data for the selected sample, future research could explore the impact of CEO's education with respect to CEO's compensation on ICFS.Practical implicationsFirst, the authors find that financially educated CEOs affect ICFS; therefore, firms should take care of CEO's education during recruitment of CEOs. Second, lending agencies should also consider the educational background of the CEO before approval of funding to make it safe. Third, investors should keep in mind the educational background of the CEO for the growth of their investment as it may be easier for financially educated CEOs to borrow from the market at the time of requirement.Originality/valueThis study contributes to the existing literature by providing empirical evidence through analyzing the impact of a CEO's education on ICFS in the context of India. This study is very unique in itself as it uses the sample of manufacturing sectors of India, which are growing very fast and attracting global investors to create a global hub of manufacturing in India. This study also considers different types of education such as financial and technical education of CEOs in the context of a developing economy like India. This study made its findings robust across company characteristics and periods based on the financial crisis.

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