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 Governança corporativa e sensibilidade investimento-fluxo de caixa no Brasil

2019 ◽  
Vol 17 (2) ◽  
pp. 72
Author(s):  
Breno Augusto de Oliveira Silva ◽  
Daniel Ferreira Caixe ◽  
Elizabeth Krauter
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
A Priori ◽  
Investment Model ◽  
Quality Level ◽  
Financial Constraint ◽  
Publicly Traded Companies ◽  
Flow Sensitivity ◽  
Governance Practices ◽  
Cash Flow Sensitivity

This study aimed to investigate the investment-cash flow sensitivity for Brazilian companies with different degrees of financial constraint according to the quality level of their corporate governance practices. An investment model was estimated through GMM for a panel data of 248 Brazilian publicly traded companies, which were a priori classified in two groups of financial constraint degrees (high and low) according to the Corporate Governance Practices Index (IPGC). The results showed that the quality of corporate governance influences the investment-cash flow sensitivity, and this sensitivity is negative and significant only for firms with poor governance, classified with high financial constraint. Furthermore, it can be concluded that IPGC proved to be an interesting variable for a priori classification of companies and an important determinant of the investment-cash flow sensitivity to identify potentially financially constrained firms.

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 CONSTRAINT MODERATION IN CASH FLOW SENSITIVITY TO EXTERNAL FINANCING OF MANUFACTURING COMPANIES

2020 ◽  
Vol 10 (1) ◽  
pp. 65
Author(s):  
Abu Hasan Ahmad ◽  
Maria Adventia Mentari Mayang Cardicna
Keyword(s):  
Cash Flow ◽  
Stock Exchange ◽  
Order Theory ◽  
Debt Financing ◽  
Financial Constraint ◽  
External Financing ◽  
Manufacturing Companies ◽  
Short Term ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity

This study aims to test the pecking order theory by looking at the level of cash flow sensitivity as a source of internal financing for all types of external financing (debt and equity). This testing also considering the financial constraint variable as moderation. The data used are the financial statements of manufacturing companies listed on the Indonesia Stock Exchange in 2014 - 2018. The dependent variable is all types of external financing (debt and equity). Debt financing is divided into two forms, short-term debt financing and long-term debt financing. While the independent variable is cash flow. The results obtained is that cash flow does not substitute all types of external financing, and the highest cash flow sensitivity occurs in short-term debt financing. The next result is that financial constraint strengthen the sensitivity of cash flow to debt and equity financing

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

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.

Investment cash flow sensitivity and financial constraint: a cluster analysis approach

2015 ◽  
Vol 47 (41) ◽  
pp. 4442-4457 ◽  
Author(s):  
Maurizio La Rocca ◽  
Raffaele Staglianò ◽  
Tiziana La Rocca ◽  
Alfio Cariola
Keyword(s):  
Cluster Analysis ◽  
Cash Flow ◽  
Analysis Approach ◽  
Financial Constraint ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity

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.

The Time-varying Cash Flow Sensitivity of Cash

2014 ◽  
Vol 15 (2) ◽  
pp. 1-34
Author(s):  
NyoNyo Aung Kyaw ◽  
Sijing Zong
Keyword(s):  
Cash Flow ◽  
Cash Flows ◽  
Time Varying ◽  
Financial Constraint ◽  
Manufacturing Companies ◽  
Macroeconomic Conditions ◽  
Flow Sensitivity ◽  
Time Period ◽  
Cash Flow Sensitivity ◽  
Using Data

By using data of US manufacturing companies, we revisit the cash flow sensitivity to cash in two sub-samples of 1993-2000 and 2000-2011 to investigate the time-varying features of the cash flow sensitivity of cash. Our results show a weakening coefficient of US manufacturing firms from 1990s to 2000s. The sensitivity in the later time period is only a half of its original scale. Financially unconstrained firms seem to converge with the constrained firms in the later period, leading to the conclusion that macroeconomic conditions impact more on the cash flow sensitivity of cash than the external financial constraint does. Further, our research identifies that the overall decreasing sensitivity is driven by firms with negative cash flows.

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