Measuring Financing Constraints Using Firm-Level Estimation of Investment-Cash Flow Sensitivities: A Bayesian Approach

2010 ◽  
Author(s):  
Bert D'Espallier ◽  
Jolien Huybrechts ◽  
Félix J. López-Iturriaga
Keyword(s):  
Cash Flow ◽  
Bayesian Approach ◽  
Financing Constraints ◽  
Firm Level ◽  
Cash Flow Sensitivities

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.

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.

Sign in / Sign up

Export Citation Format

Share Document