Cash Flow Sensitivities of Financial Decisions: Evidence from an Emerging Market

Abstract

This study investigates the sensitivity of financing, investment, and distribution decisions to changes in operating cash flow, and whether these sensitivities depend on whether or not firms are financially constrained. Using a sample of 2,650 firm-years of Turkish firms for the period 1996 to 2013, we find that an increase in the short-term cash flows is associated with an increase in cash balances, irrespective of whether or not firms are financially constrained. However, unconstrained firms hold a larger cash balance than constrained firms. Dividends are positively related to the short-term cash flows of both types of firms. Investments are not sensitive to cash flow for either type of firms. An increase in their short-term cash flow induces the financially constrained firms to reduce debt financing, but makes the unconstrained firms increase their debt financing and reduce equity financing. Although firms in general prefer to use part of the saved cash in the long term, they do not deplete their cash savings. Constrained firms resort to debt financing in response to an increase in their long-term cash flow.

Cash - Cash Flow Sensitivity: Evidence From Emerging Markets

“…The sign of the size is unclear in the literature. The coefficient of size indicates wide variations across estimations (Almeida et al 2004;Erdogan, 2018;Han & Qiu, 2007;Lin, 2007). The sign of the change in short-term debt is uncertain.…”

“…Almeida ve diğerleri (2004) bulmuş oldukları sonuca göre finansal açıdan kısıtlı olmayan firmalar dışsal finansmana erişim sıkıntısı yaşamadığı için potansiyel karlı projeleri ertelemek zorunda değillerdir ve nakit akışlarına olan duyarlılılıkları daha azdır. Bu çalışmada bulunan sonuçlar ise (Azmat & Iqbal, 2017; Baptista e Silva, 2012; Erdogan, 2018;Koo & Maeng, 2018;Lin, 2007;Quader & Abdullah, 2016) ile benzerlik göstermektedir. Ayrıca finansal açıdan kısıtlı olmayan firmalar finansal açıdan kısıtlı olan firmalara göre daha yüksek bir katsayıya sahiptir (Erdogan, 2018;Pál & Ferrando, 2010).…”

“…Bu çalışmada bulunan sonuçlar ise (Azmat & Iqbal, 2017; Baptista e Silva, 2012; Erdogan, 2018;Koo & Maeng, 2018;Lin, 2007;Quader & Abdullah, 2016) ile benzerlik göstermektedir. Ayrıca finansal açıdan kısıtlı olmayan firmalar finansal açıdan kısıtlı olan firmalara göre daha yüksek bir katsayıya sahiptir (Erdogan, 2018;Pál & Ferrando, 2010). Analiz sonuçları şu şekilde yorumlanabilir.…”

“…The results show that both financially constrained and unconstrained firms have positive CCFS. Erdogan (2018) analyzes Turkish firms from 1996 to 2013. She classifies them according to dividend payout, asset tangibility, and sales growth.…”

“…First, since most of the academic articles on CCFS are about firms in developed markets, we consider emerging markets in the study. Second, studies in the literature analyze a single country's data, such as Turkey (Arslan et al 2006;Erdogan, 2018), Taiwan (Lin, 2007), South Korea (Koo & Maeng, 2018), and Vietnam (Tran, 2020a). In this study, we aim to contribute to the literature by including firm datasets from more countries.…”