scholarly journals Financing Constraints And Financial Development: Evidence From Selected African Countries

2015 ◽  
Vol 14 (4) ◽  
pp. 655
Author(s):  
Letenah Ejigu Wale
Keyword(s):  
Financial Development ◽  
Cash Flow ◽  
Financing Constraints ◽  
African Countries ◽  
Positive Role ◽  
Firm Level ◽  
Stock Market Development ◽  
Flow Sensitivity ◽  
Sensitivity Coefficients ◽  
Cash Flow Sensitivity

Economic theory posits that financial development eases firm level financing constraints by mitigating information asymmetry and contracting imperfections. This paper empirically tests for this notion by using firm level data from selected African countries. The sampled firms show positive and significant investment cash flow sensitivity coefficients indicating they are financially constrained. Financial development is found to have a significant and negative effect on the estimated cash flow sensitivity coefficients indicating it reduces firm financial constraints. The result further shows that such positive role of financial development is attributed to financial intermediary development and not to stock market development. A unique result to the African reality is that even firms in countries with high level of financial development are financially constrained. This implies the financial development in Africa is too weak and more policy attention is needed in this regard.

scholarly journals The Effect of Financial Development on the Investment-Cash Flow Relationship: Cross-Country Evidence from Europe

2010 ◽  
Vol 10 (1) ◽  
Author(s):  
Bo Becker ◽  
Jagadeesh Sivadasan
Keyword(s):  
Financial Markets ◽  
Financial Development ◽  
Cash Flow ◽  
Set Covering ◽  
Firm Level ◽  
Data Set ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
Cross Country ◽  
Financial Environment

Abstract We investigate if financial development eases firm level financing constraints in a cross-country data set covering much of the European economy. The cash flow sensitivity of investment is lower in countries with better-developed financial markets. To deal with potentially serious biases, we employ a difference-in-difference methodology. Subsidiaries of other firms have access to internal capital markets and hence depend less on the external financial environment. As predicted, the benefit of financial development is smaller in subsidiary firms. This shows that financial development can mitigate financial constraints, and sheds light on the link between financial and economic development.

Financial Development and the Cash Flow Sensitivity of Cash

2006 ◽  
Vol 41 (4) ◽  
pp. 787-808 ◽  
Author(s):  
Inder K. Khurana ◽  
Xiumin Martin ◽  
Raynolde Pereira
Keyword(s):  
Financial Development ◽  
Cash Flow ◽  
Financial Constraints ◽  
Cash Holdings ◽  
Cash Flows ◽  
External Financing ◽  
Firm Level ◽  
Investment Projects ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity

AbstractPrior research posits that market imperfections and the lack of institutions that protect investor interests create a divergence between the cost of internal and external funds, thereby constraining firms' ability to fund investment projects through external financing. Financial constraints force firms to manage their cash flows to finance potentially profitable projects. A related stream of research documents that financial constraints due to costly external financing are more pronounced in underdeveloped financial markets. We examine the influence of financial development on the demand for liquidity by focusing on how financial development affects the sensitivity of firms' cash holdings to their cash flows. Using firm-level data for 35 countries covering about 12,782 firms for the years 1994–2002, we find the sensitivity of cash holdings to cash flows decreases with financial development. We also consider additional implications of firms' cash flow sensitivity of cash with respect to firm size and business cycles. Overall, we provide new cross-country evidence of the role of financial development on financial constraints.

scholarly journals Investment Cash Flow Sensitivity as a Measure of Financing Constraints: Evidence from Selected African Countries

2014 ◽  
Vol 6 (8) ◽  
pp. 647-657
Author(s):  
Letenah Ejigu Wale
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
A Priori ◽  
Financing Constraints ◽  
Financial Constraint ◽  
African Countries ◽  
Multidimensional Construct ◽  
Flow Sensitivity ◽  
Conflicting Evidence ◽  
Cash Flow Sensitivity

The use of investment cash flow sensitivity as a measure of financing constraints is an unresolved research agenda. This paper endeavors to explain the conflicting evidence by using proxies for both internal financial constraint and external financial constraint measures. Data is taken from selected six African countries, a region where no previous studies are conducted. It is observed that the investment curve is Ushaped when firms are classified on the basis of internal financial constraint measure (i.e. cash flow). Using external financial constraint proxies (age, size and payout) it is found that all category of firms show positive and significant investment cash flow sensitivity. This suggests that the sampled African firms are externally financial constrained. It is concluded that the way firms are a priori classified as internal vs. external financial constrained matters. This raises the issue of whether the term financial constraints itself is a multidimensional construct.

scholarly journals Accounting Quality and Firm-Level Capital Investment

2006 ◽  
Vol 81 (5) ◽  
pp. 963-982 ◽  
Author(s):  
Gary C. Biddle ◽  
Gilles Hilary
Keyword(s):  
Information Asymmetry ◽  
Cash Flow ◽  
Capital Investment ◽  
Investment Efficiency ◽  
Accounting Quality ◽  
Control Variables ◽  
Firm Level ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity

This study examines how accounting quality relates to firm-level capital investment efficiency. Our first hypothesis is that higher quality accounting enhances investment efficiency by reducing information asymmetry between managers and outside suppliers of capital. Our second hypothesis is that this effect should be stronger in economies where financing is largely provided through arm's-length transactions compared with countries where creditors supply more capital. Our results are consistent with these hypotheses both across and within countries. They are robust to alternative econometric specifications, different measures of accounting quality and investment-cash flow sensitivity, and numerous control variables.

The Study on Relationship between Financing Constraints and Investment-Cash Flow Sensitivity in Chinese Listed Companies

2011 ◽  
Vol 268-270 ◽  
pp. 1844-1849
Author(s):  
Chang Chun Li
Keyword(s):  
Cash Flow ◽  
Logistic Regression Model ◽  
Listed Companies ◽  
Financial Data ◽  
Financing Constraints ◽  
External Financing ◽  
Flow Sensitivity ◽  
Chinese Listed Companies ◽  
Cash Flow Sensitivity ◽  
The Relationship

This paper uses the financial data of all Chinese listed companies to construct two indexes that reflect the degree of external financing constraints faced by firms, using logistic regression model and multiple discriminate analyses respectively. Second, the author examines the relationship between financing constraints and the investment-cash flow sensitivity using OLS regressions. This paper provides evidence that the relationship between financing constraints and investment-cash flow sensitivity is monotonic, which is consistent with the findings of FHP(1988).

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