Corporate Sustainable Growth and the Financing of Innovation

2013 ◽  
Vol 4 (4) ◽  
pp. 43-64 ◽  
Author(s):  
Amani Kahloul ◽  
Ezzeddine Zouari
Keyword(s):  
Cash Flow ◽  
Adjustment Costs ◽  
Cash Flows ◽  
Sustainable Growth ◽  
Flow Sensitivity ◽  
Asymmetric Pattern ◽  
Cash Flow Sensitivity ◽  
Cash Flow Sensitivities ◽  
Flow Components ◽  
Transitory Component

R&D investments are a channel for growth, at the macro and micro levels. However, they are known to be characterized with high adjustment costs, therefore, it is generally admitted in the literature that firms try to smooth their R&D investments in face of shocks to internal finance, and the literature supposes that the observed investment – current cash-flow sensitivities are downward biased because R&D expenses are expected to respond to the permanent component of cash-flow but not to its transitory component. However, very few proofs, if at all, exist on the link between R&D and cash-flow components and its implications in terms of its contribution to the corporate sustainable growth. The authors decompose cash-flow into its permanent and transitory components and provide formal evidence that R&D- current cash-flow sensitivity is downward biased and that R&D- permanent cash-flow sensitivity better informs about the contribution of cash-flow to R&D smoothing, which shows a managerial commitment to sustainability. Unexpectedly, and in spite of the negligible observed sensitivities of R&D to the transitory component of cash-flow, the authors’ regressions reveal that these sensitivities have an asymmetric pattern: they are higher when cash-flow is expanding than when it is declining. This reveals a managerial preference for immediate growth, which jeopardizes sustainable growth, because of the risk of costly liquidation inherent to the reliance on the volatile transitory cash-flows.

Debt holdings and investment cash flow sensitivity of listed firms

2018 ◽  
Vol 13 (5) ◽  
pp. 943-958 ◽  
Author(s):  
Johnson Worlanyo Ahiadorme ◽  
Agyapomaa Gyeke-Dako ◽  
Joshua Yindenaba Abor
Keyword(s):  
Cash Flow ◽  
Empirical Modeling ◽  
Empirical Literature ◽  
Data Set ◽  
Content Type ◽  
Listed Firms ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
Cash Flow Sensitivities ◽  
Internal Funds

Purpose The purpose of this paper is to examine the effect of debt holdings on the sensitivity of firms’ investment to availability of internal funds. Design/methodology/approach For a panel data set of 27 Ghanaian listed firms for the period 2007–2013, the paper applies the Euler equation approach to the empirical modeling of investment. Findings The study finds support for the assertion that listed firms face less severe corporate control problems and lower financing constraints, and thus, have lower investment cash flow sensitivities. The study also finds that a significant positive sensitivity of investment to internal funds is associated with firms that have high debt holdings. Practical implications An implication of this study is that firms with high debt holdings face greater challenges in accessing external finance. These firms are likely to experience under-investment which at a macro level would translate into lower investments and economic growth for the country. Originality/value Empirical literature document that in the presence of market imperfections, investments of financially constrained firms become sensitive to the availability of internal finance. There are also contradictory evidences regarding the pattern of the observed investment cash flow sensitivity. This study examines the effect of debt holdings on the sensitivity of firms’ investment to availability of cash flow. This is yet to be empirically tested despite some theoretical explanations.

scholarly journals Ownership Structure and Cash Flows As Determinants of Corporate Dividend Policy in Pakistan

2010 ◽  
Vol 3 (3) ◽  
pp. 210 ◽  
Author(s):  
Talat Afza ◽  
Hammad Hassan Mirza
Keyword(s):  
Cash Flow ◽  
Dividend Policy ◽  
Stock Exchange ◽  
Cash Flows ◽  
Least Square ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
Operating Cash Flow ◽  
The Impact ◽  
Individual Ownership

Dividend Policy is among the widely addressed topics in modern financial literature. The inconclusiveness of the theories on importance of dividend in determining firm’s value has made it one of the most debatable topics for the researchers (see for example, Ramcharan, 2001; Frankfurter et. al 2002; Al-Malkawi, 2007). The present study investigates the impact of firm specific characteristics on corporate dividend behavior in emerging economy of Pakistan. Three years data (2005-2007) of 100 companies listed at Karachi Stock Exchange (KSE) has been analyzed using Ordinary Least Square (OLS) regression. The results show that managerial and individual ownership, cash flow sensitivity, size and leverage are negatively whereas, operating cash-flow and profitability are positively related to cash dividend. Managerial ownership, individual ownership, operating cash flow and size are the most significant determinants of dividend behavior whereas, leverage and cash flow sensitivity do not contribute significantly in determining the level of corporate dividend payment in the firms studied in our sample. Estimated results are robust to alternative proxy of dividend behavior i.e. dividend intensity.

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.

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 The Implications of Investment–Cash Flow Sensitivities for Franchising Firms: Theory and Evidence From the Restaurant Industry

2019 ◽  
Vol 60 (1) ◽  
pp. 77-91 ◽  
Author(s):  
Tarik Dogru ◽  
Arun Upneja
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Restaurant Industry ◽  
Cash Flow Sensitivity ◽  
Cash Flow Sensitivities ◽  
Scant Attention ◽  
Restaurant Firms ◽  
Flow Theories

Expansion through franchising could help restaurant firms solve financial constraints, but it could also make overinvestment easier for misaligned CEOs. Whereas the former topic has been extensively examined, the latter has received scant attention from researchers. The purpose of this study is to investigate whether franchising alleviates financial constraints or leads to overinvestment problems in restaurant firms. For this purpose, we analyzed and compared investment–cash flow sensitivities between constrained and unconstrained; franchising and nonfranchising; constrained, franchising and unconstrained, franchising; and constrained, nonfranchising and unconstrained, nonfranchising restaurant firms. The results show that unlike other industries, unconstrained restaurant firms depend more on cash flows for investment than constrained restaurant firms do. Although investment–cash flow sensitivity in nonfranchising restaurant firms was similar to that of firms in other industries, unconstrained restaurant firms that expand through franchising rely more on cash flows. These findings suggest that restaurant firms’ expansion through franchising is likely to increase overinvestment problems. Franchising could serve as a long-term method of financing for financially constrained firms as well as a short-term financing tool. However, unconstrained, franchising firms should distribute their excess cash flows to shareholders. Theoretical implications are discussed within the realms of the franchising, pecking order, and free cash flow theories.

scholarly journals Are companies managed by overconfident CEO financially constraint? Investment-cash flow sensitivity approach

Equilibrium ◽  
2020 ◽  
Vol 15 (1) ◽  
pp. 107-131
Author(s):  
Elżbieta Bukalska
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
Value Added ◽  
Cash Flows ◽  
Financial Decisions ◽  
Flow Sensitivity ◽  
Financing Decisions ◽  
Cash Flow Sensitivity ◽  
Internal Funds ◽  
The Impact

Research background: Overconfidence is one of the biases and fallacies that affect a cognitive process. Indeed, overconfidence has some serious consequences even in corporate finance. The literature is not consistent as for the impact of overconfidence on investment and financing decisions. Additionally, we include the issue of financial constraints to our analysis as investment-cash flow sensitivity (ICFS) is perceived as the measure of financial constraints. Purpose of the article: The aim of this paper is to test investment-cash flow sensitivity and financial constraints under managerial overconfidence. We think that companies managed by overconfident managers show a higher relation between cash flows and investment and demonstrate bigger financial constraints. Methods: In this paper, we test investment-cash flow sensitivity and financial constraints under CEO overconfidence among panel data of Polish private firms. We collect the unique sample of 145 non-listed companies by surveying the CEOs on their overconfidence. We collect the financial data of surveyed companies covering the 2010–2016 period. Total number of observations is 1015. Findings & Value added: First, we find a positive and higher relation between the investment-cash flow sensitivity for companies managed by overconfident managers which is in line with recent research. As for the financial constraints we find lower level of financial constraints among the companies managed by overconfident man-agers. This might be evidence that despite having lower financial constraints the companies managed by overconfident managers intentionally choose internal funds as the main source of financing and refrain from using external funds. To the best of our knowledge, this paper is the first empirical study for Polish companies on the relation between CEO overconfidence and financial decisions.

The cash flow sensitivity of cash in family firms: does the board of directors matter?

2018 ◽  
Vol 44 (11) ◽  
pp. 1364-1380 ◽  
Author(s):  
Assil Guizani ◽  
Faten Lakhal ◽  
Nadia Lakhal
Keyword(s):  
Board Of Directors ◽  
Cash Flow ◽  
Family Firms ◽  
Cash Flows ◽  
Moderating Effect ◽  
Content Type ◽  
Family Control ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity ◽  
French Family

Purpose The purpose of this paper is to shed light on the effect of French family control on the cash flow sensitivity of cash (CFSC). It also investigates the moderating effect of board of directors’ features on this relation. Design/methodology/approach Based on a sample of French-listed companies from 2012 to 2014, the authors use GLS regression models on panel data estimated with robust standard errors, clustered at the firm level. Findings The results show that family control is positively associated with the CFSC. This finding suggests that families are likely to hold more cash out of their cash flows for entrenchment and expropriation purposes. A further analysis shows that board size, independence and the two-tier board structure negatively affect the CFSC in family firms. Board efficiency is then a guarantee of minority shareholders’ interests against family expropriation risks in France. Research limitations/implications These findings suggest that French family firms are likely to expropriate minority interests by extracting rents through their cash holding behavior. However, in the presence of high-quality board features, the relation turns negative, suggesting that the quality of the board is an efficient corporate governance device that is likely to monitor family corporate decisions. Originality/value This paper extends previous research by investigating the moderating effect of board features on the relation between family control and the CFSC. The research provides a metric for agency problems that is the sensitivity of cash to cash flows and offers theoretical support for the agency argument of hoarding cash.

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