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Financial Constraints And Investment Cash Flow Sensitivities
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Book Synopsis Financial Constraints and Investment-Cash Flow Sensitivities by : Heitor Almeida
Download or read book Financial Constraints and Investment-Cash Flow Sensitivities written by Heitor Almeida and published by . This book was released on 2008 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: A key assumption in the existing theoretical work on firm financial constraints is that these constraints translate entirely into higher costs of funds. This approach poses two types of difficulties to the research on that topic. First, it inadvertently narrows our understanding about financial constraints since, in practice, firms often face credit rationing. Second, it is a matter of debate whether such an approach can deliver unambiguous implications for corporate investment. The current paper develops a theory explaining the relationship between corporate investment and cash flow when firms face credit quantity constraints. We show that when firms' investments and use of external finance are endogenously related, investment-cash flow sensitivities increase as credit constraints are relaxed. From an empirical perspective, our analysis suggests a consistent way of identifying the impact of financial constraints on corporate investment. Our predictions, however, are markedly different from those examined in most empirical studies in this area.
Book Synopsis Financial Constraints and House Prices by : Heitor Almeida
Download or read book Financial Constraints and House Prices written by Heitor Almeida and published by . This book was released on 2000 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Credit Constraints and Investment-Cash Flow Sensitivities by : Heitor Almeid
Download or read book Credit Constraints and Investment-Cash Flow Sensitivities written by Heitor Almeid and published by . This book was released on 2008 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the investment behavior of firms under a quantity constraint on the amount of external funds which can be raised at a given cost (credit constraints). In this world, investment-cash flow sensitivities decrease in the degree of credit constraints, until a firm becomes effectively unconstrained. This generates a acirc;not;SU-shapedacirc;not;? curve for the relationship between sensitivities and credit constraints. Froman empirical perspective, the good news is that we suggest a theoretically consistent way to identify the impact of financial constraints on investment behavior, at least under the condition that financial constraints affect primarily the quantity of credit available to firms. The bad news is that our prediction is in a sense the opposite as the one explored in previous empirical literature.
Book Synopsis Investment-cash Flow Sensitivities are Not Valid Measures of Financing Constraints by : Steven N. Kaplan
Download or read book Investment-cash Flow Sensitivities are Not Valid Measures of Financing Constraints written by Steven N. Kaplan and published by . This book was released on 2000 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.
Book Synopsis Asymmetric Effects of the Financial Crisis by : Mr.Vadim Khramov
Download or read book Asymmetric Effects of the Financial Crisis written by Mr.Vadim Khramov and published by International Monetary Fund. This book was released on 2012-04-01 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm's assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms' balance sheets. This paper deepens our understanding of firms' investment behavior.
Book Synopsis Three Essays on the Interplay Between Firms' Financial Constraints and Investment Cash Flow Sensitivities by : Ryusuke Oishi
Download or read book Three Essays on the Interplay Between Firms' Financial Constraints and Investment Cash Flow Sensitivities written by Ryusuke Oishi and published by . This book was released on 2012 with total page 538 pages. Available in PDF, EPUB and Kindle. Book excerpt: A firm is defined as financially constrained when its access to external source of financing is limited, resulting in difficulties with maintenance of efficient investment levels due to possible cash shortages. Such firms' investment levels are generally believed to be sensitive to their cash flows. However, two characteristics of the information asymmetry ('agency problem' and 'adverse selection problem') between firms' insiders and outsiders, can introduce some discrepancies to this financial constraint problems. Moreover, the above informational asymmetry characteristics can also depend on financial market behaviour. This thesis analyses the aforementioned financial constraint feedback mechanism. Specifically, in Chapter 2 we perform a comparative analysis of the firms in five leading G20 countries, and how the dynamics of their investment behaviour respond to financial market type. Two markets are considered - Anglo-Saxon market (present in the US and the UK), and bank-based market (present in Japan, Germany, and Korea). In addition, the investigation looks at the firm-specific attribute, banking affiliation, which is present in Japan, Germany and Korea. Our comparative analysis reveals that, on average, firms in the bank-based market are less likely to suffer from financial constraint problems. Moreover, the banking affiliation characteristic is found to play a significant role in firm financial constraint problem mitigation. In Chapter 3 we separately investigate the relationships between the US firms' financial constraints and two informational asymmetry problems, namely, agency problems involving the manager's over-investment incentives and the adverse selection problem originating from stock return volatility. Our empirical analysis identifies that the manager's over-investment incentive negatively impacts the firms' financial constraint status, moreover, the firms exhibiting higher stock return volatilities are more likely to be financially constrained.
Book Synopsis Investment and Financial Constraints by : Thomas Koch
Download or read book Investment and Financial Constraints written by Thomas Koch and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial constraints are a main driver hindering firms' growth potential. The pecking order suggests that firms rely on internal funds when they are available to finance their investment expenditures. If a firm faces larger financial constraints, it is even more dependent on the availability of internally generated cash flow. On the empirical side, investment-cash flow sensitivities and cash-cash flow sensitivities are used to test for the presence of financial constraints. In this paper, we use a large data set and analyze different, sometimes conflicting findings in the literature. We find that (1), the regression results are very sensitive to the splitting scheme used to classify firms into financially constrained and unconstrained firms and results may be different according to the regression technique used, (2), the inclusion of distressed firm years (negative cash flow years) in the regressions changes results significantly and can at least partly explain previous opposite results concerning the usefulness of ICFS and CFSC, (3), cash flow matters, (4), ICFS and CFSC are declining over time and even vanish for some regression specifications in recent years and finally, (5), the relationship between cash flow and investment and to a lower extent the relationship between cash flow and changes in cash holdings are U-shaped.
Book Synopsis Investment-Cash Flow Sensitivities by : Nathalie Moyen
Download or read book Investment-Cash Flow Sensitivities written by Nathalie Moyen and published by . This book was released on 2002 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: From the existing literature, it is not clear what effect financial constraints have on the sensitivity of firms' investment to their cash flow. Conflicting results are due to the use of different criteria for identifying financially constrained firms. I propose an explanation that reconciles the conflicting empirical evidence. I present two models: the unconstrained model in which firms can raise funds on external markets and the constrained model in which firms cannot do so. From these two models, I generate a panel of data, including investment and cash flow series. I find that the sensitivity of investment to cash flow is lower for firms described by the constrained model than for firms described by the unconstrained model, consistent with Kaplan and Zingales's (1997) result. I also find in my generated panel of data that the sensitivity of investment to cash flow is higher for low dividend firms than for high dividend firms, consistent with Fazzari, Hubbard, and Petersen's (1988) result.
Book Synopsis Financial Constraints and Investment-Cash Flow Sensitivity by : Zhangkai Huang
Download or read book Financial Constraints and Investment-Cash Flow Sensitivity written by Zhangkai Huang and published by . This book was released on 2002 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a large sample of US listed companies, we show that the relation between financial constraints and investment-cash flow sensitivity is non-linear. The different results generated in previous studies could be explained by sample selection problems. We show that when using actual level of investment in the regression, as in the standard investment literature, coefficient on cash flow cannot be an accurate measure of financial constraints. The monotonic and positive relationship between financial constraints and investment-cash flow sensitivity is not robust in large-sample studies using detailed classification scheme.
Book Synopsis Financial Constraints, Mispricing and Corporate Investment by : George Wong
Download or read book Financial Constraints, Mispricing and Corporate Investment written by George Wong and published by . This book was released on 2009 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the separate impact and joint effect of financial constraints and financial market mispricing on the sensitivity of investment to internal cash flows. Using a large sample of US manufacturing firms over the period 1971-2004, we find that financially unconstrained firms are more flexible in adjusting their sources of financing for corporate investment in response to financial market mispricing. Specifically, financially unconstrained firms tend to have lower (higher) investment-cash flow sensitivities in situations of overvaluation (undervaluation). This provides an explanation of why unconstrained firms have higher valuations than constrained firms.
Book Synopsis Do Financing Constraints Explain Why Investment is Correlated with Cash Flow? by : Steven N. Kaplan
Download or read book Do Financing Constraints Explain Why Investment is Correlated with Cash Flow? written by Steven N. Kaplan and published by . This book was released on 2008 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the sources of the correlation between corporate cash flow and investment by undertaking an in-depth analysis of the 49 low-dividend firms identified by Fazzari, Hubbard, and Petersen (1988) as having an unusually high investment-cash flow sensitivity. We find that in only 15% of firm-years is there some question as to a firm's ability to access internal or external funds to increase investment. Strikingly, those firms that appear less financially constrained exhibit a significantly greater investment- cash flow sensitivity than firms that appear more financially constrained. We find this pattern for the entire sample period, for sub-periods, and for individual years. The results indicate that a higher sensitivity cannot be interpreted as evidence that a firm is more financially constrained. We discuss reasons and provide evidence why the opposite may be true. These findings challenge much of the existing evidence on the effects of financial constraints.
Book Synopsis Financial Constraints, Asset Tangibility, and Corporate Investment by : Heitor Almeida
Download or read book Financial Constraints, Asset Tangibility, and Corporate Investment written by Heitor Almeida and published by . This book was released on 2008 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: When firms are able to pledge their assets as collateral, investment and borrowing become endogenous: pledgeable assets support more borrowings that in turn allow for further investment in pledgeable assets. We show that this credit multiplier has an important impact on investment when firms face credit constraints: investment-cash flow sensitivities are increasing in the degree of tangibility of constrained firms' assets. If firms are unconstrained, however, investment-cash flow sensitivities are unaffected by asset tangibility. Crucially, asset tangibility itself may determine whether a firm faces credit constraints - firms with more tangible assets may have greater access to external funds. This implies that the relationship between capital spending and cash flows is non-monotonic in the firm's asset tangibility. Our theory allows us to use a differences-in-differences approach to identify the effect of financing frictions on corporate investment: we compare the differential (marginal) effect of asset tangibility on the sensitivity of investment to cash flow across different regimes of financial constraints. We implement this testing strategy on a large sample of manufacturing firms drawn from COMPUSTAT between 1985 and 2000. Our tests allow for the endogeneity of the firm's credit status, with asset tangibility influencing whether a firm is classified as credit constrained or unconstrained in a switching regression framework. The data strongly support our hypothesis about the role of asset tangibility on corporate investment under financial constraints.
Book Synopsis Investment-Cash Flow Sensitivity and Financial Constraints by : Klaas Mulier
Download or read book Investment-Cash Flow Sensitivity and Financial Constraints written by Klaas Mulier and published by . This book was released on 2018 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We contribute to the financial constraints literature and the investment-cash flow sensitivity debate by defining a new and simple index of firm level financial constraints for unquoted European SMEs. Firms that are constrained according to our index pay higher interest rates on their debt. An exogenous financial supply shock reveals that our index also captures financial constraints in terms of the volume of credit. Our index outperforms existing indices in capturing financial constraints of unquoted SMEs. Finally, employing our proposed index to identify financially constrained firms and using firm-level employment growth as a control for investment opportunities, we find that constrained firms display the highest investment-cash flow sensitivities.
Book Synopsis Investment, Acquisitions, and Financial Constraints by : Joshua Robert Pierce
Download or read book Investment, Acquisitions, and Financial Constraints written by Joshua Robert Pierce and published by . This book was released on 2007 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Do Financing Constraints Explain why Investment is Correlated with Cash Flow? by : Steven N. Kaplan
Download or read book Do Financing Constraints Explain why Investment is Correlated with Cash Flow? written by Steven N. Kaplan and published by . This book was released on 1995 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the sources of the correlation between corporate cash flow and investment by undertaking an in-depth analysis of the 49 low-dividend firms identified by Fazzari, Hubbard, and Petersen (1988) as having an unusually high investment-cash flow sensitivity. We find that in only 15% of firm-years is there some question as to a firm's ability to access internal or external funds to increase investment. Strikingly, those firms that appear less financially constrained exhibit a significantly greater investment- cash flow sensitivity than firms that appear more financially constrained. We find this pattern for the entire sample period, for sub-periods, and for individual years. The results indicate that a higher sensitivity cannot be interpreted as evidence that a firm is more financially constrained. We discuss reasons and provide evidence why the opposite may be true. These findings challenge much of the existing evidence on the effects of financial constraints
Book Synopsis The Determinants of Investment-Cash Flow Sensitivity by : Gayané Hovakimian
Download or read book The Determinants of Investment-Cash Flow Sensitivity written by Gayané Hovakimian and published by . This book was released on 2010 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using firm-level estimates of investment-cash flow sensitivity, I classify firms into groups of high, low, and negative sensitivity. I find that investment-cash flow sensitivity is non-monotonic with respect to financial constraints, cash flows, and growth opportunities. Specifically, firms with negative cash flow sensitivity have the lowest cash flows and highest growth opportunities, and appear the most financially constrained. Cash flow insensitive firms have the highest cash flows and lowest growth opportunities, and appear the least financially constrained. At least partially, negative cash flow sensitivity is driven by high investment and low cash flow levels at the inception of firms as public companies, which decrease and increase, respectively, with age.
Book Synopsis Testing Static Trade-off Against Pecking Order Models of Capital Structure by : Lakshmi Shyam-Sunder
Download or read book Testing Static Trade-off Against Pecking Order Models of Capital Structure written by Lakshmi Shyam-Sunder and published by . This book was released on 2023-07-18 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
