Cash Flow and Capital Account Liberalization on some Nigerian Firms’ Investment Growth: The Sequel (Disaggregated Approach)

Abstract

This study examined the impact of cash flow, capital account liberalization (CAL) on investment growth of firms from both the direct and indirect channels, using the disaggregated firm-level data of 44 tradable and 31 non-tradable firms for the period of 2006 to 2016. It employed the differenced dynamic panel regression technique. Among others the results revealed that CAL is positively but insignificantly related to investment growth, and investment growth appeared to be determined by cash flow (internal) thereby indicating the presence of financial constraint for both samples. However, when we compared the level of financial constraint of the tradable and non-tradable firms, judging by the magnitude of the coefficients of cash flows in both samples, non-tradable firms were found to be severely financially constrained. The study also determined that CAL appeared to be sensitive to investment growth for both firm types through the indirect route, precisely the capital/credit availability channel measured as cash flow. The level of capital openness is still low for tradable firms hence the need for more but monitored openness.