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.

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.

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.

Corporate governance and investment-cash flow sensitivity: Evidence from emerging markets

2013 ◽  
Vol 15 ◽  
pp. 57-71 ◽  
Author(s):  
Bill Francis ◽  
Iftekhar Hasan ◽  
Liang Song ◽  
Maya Waisman
Keyword(s):  
Corporate Governance ◽  
Emerging Markets ◽  
Cash Flow ◽  
Flow Sensitivity ◽  
Cash Flow Sensitivity
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