Investments, Financing Constraints and Buyouts: the Effect of Private Equity Investors on the Sensitivity of Investments to Cash Flow

2014 ◽  
Vol 84 (1) ◽  
pp. 25-54 ◽  
Author(s):  
Elisa Ughetto
Keyword(s):  
Cash Flow ◽  
Private Equity ◽  
Financing Constraints

Investment and Cash Flow: New Evidence

2016 ◽  
Vol 51 (4) ◽  
pp. 1135-1164 ◽  
Author(s):  
Jonathan Lewellen ◽  
Katharina Lewellen
Keyword(s):  
Measurement Error ◽  
Cash Flow ◽  
Strong Evidence ◽  
Investment Decisions ◽  
Free Cash Flow ◽  
Financing Constraints ◽  
Flow Problems ◽  
Cash Flow Sensitivities ◽  
New Evidence

We study the investment–cash flow sensitivities of U.S. firms from 1971–2009. Our tests extend the literature in several key ways and provide strong evidence that cash flow explains investment beyond its correlation with q. A dollar of current- and prior-year cash flow is associated with $0.32 of additional investment for firms that are the least likely to be constrained and $0.63 of additional investment for firms that are the most likely to be constrained, even after correcting for measurement error in q. Our results suggest that financing constraints and free-cash-flow problems are important for investment decisions.

Cash Flow and Discount Rate Risk in the Investment Effect: A Downside Risk Approach

2018 ◽  
Vol 08 (03) ◽  
pp. 1850002
Author(s):  
Ehab Yamani ◽  
David Rakowski
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Systematic Risk ◽  
Downside Risk ◽  
Expected Returns ◽  
Financing Constraints ◽  
Rate Risk ◽  
Market State ◽  
Risk Approach ◽  
High Investment

We examine whether sensitivities to cash flow and discount rate risk in down markets explain the investment effect, in which low-investment stocks earn higher expected returns than high-investment stocks. We show how productivity and financing constraints asymmetrically impact the systematic risk of low-investment and high-investment firms, conditional on market state. Our evidence is consistent with both productivity constraints and financing constraints as explanations for the investment effect, but, contrary to expectations, more when prices are rising than falling.

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.

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