Effects of the degree of financial constraint and excessive indebtedness on firms’ investment decisions

Guevara, Juan Fernández de; Maudos, Joaquı́n; Salvador, Carlos

doi:10.1016/j.jimonfin.2020.102288

Cited by 15 publications

(7 citation statements)

References 45 publications

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“…The credit indebtedness ratio expresses the volume of bank loans and overdrafts needed to cover the corporate property needs. Despite the fact that these financial items form the group liabilities, the recommended values should not exceed 50% (Fernandez de Guevara et al, 2021). In both countries, the lowest credit indebtedness ratio was achieved in 2017.…”

Section: Resultsmentioning

confidence: 96%

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Distinctive determinants of financial indebtedness: evidence from Slovak and Czech enterprises

Valášková

Klieštik

Gajdosikova

2021

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Research background: Indebtedness indicators are used to monitor the structure of corporate financial resources. The company's share of its own and foreign resources affects the financial stability of the company. A high share of own re-sources makes the company stable, and independent. With a low share, on the contrary, the company is unstable, market fluctuations and credit uncertainty can have serious consequences. However, foreign capital is cheaper, and too high indebtedness ratios can jeopardize the existence of enterprises. Purpose of the article: In general, the economic recession worsens the capital structure of enterprises, especially their debt management. Thus, the paper aims to apply the set of 13 indebtedness ratios to a sample of 779 Slovak and Czech enterprises from the construction sector to determine key microeconomic determinants that may influence the level of indebtedness. Methods: A non-parametric one-way analysis of variance ? the Kruskal-Wallis test ? was used to determine whether the set of indebtedness ratios is the same across countries, districts, and sizes. For analyzing the specific sample pair of stochastic dominance, the pairwise comparison was realized using the Dunn'stest with Bonferonni correction. The Mann-Whitney test was used to compare the differences in the set of indebtedness ratios between two independent groups of enterprises, based on their legal form and country. Findings & value added: The level of total indebtedness ratio and the self-financing ratio depends on the region as well as on the size of the enterprise and the legal form. In the case of credit indebtedness and debt-to-cash-flow indebted-ness, their dependence on the size of the enterprise and the legal form is obvious. The importance of the region and the legal form of enterprises, vice versa, affect the level of the financial independence ratio. These outputs are relevant for au-thorities, policy makers, or financial institutions to identify financial constraints that construction enterprises face and, as a result, make a long-term contribution to theory in this field.

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Section: Resultsmentioning

confidence: 96%

“…The importance of indebtedness and its effect on corporate investment decisions is declared in a study by Fernandez de Guevara et al (2021). Authors declare in their research that a debt-to-assets ratio higher than 53%, increases the negative effect of indebtedness on business operations.…”

Section: Literature Reviewmentioning

confidence: 99%

Distinctive determinants of financial indebtedness: evidence from Slovak and Czech enterprises

Valášková

Klieštik

Gajdosikova

2021

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“…There is also a strong connection between the attributes of the firm's owner and cash flow constraints (Bağır and Seven, 2021). The firm's decision to invest is also dependent on the financial behavior of the firm (de Guevara et al, 2021). It is also found that financing constraints are an important factor inhibiting the TFP of firms (Wong et al, 2023).…”

Section: Financial Constraintsmentioning

confidence: 99%

The Role of Moderators on Product Quality and Export Flows: The Case of Pakistan

Saeed,

Haq,

Bhatti

2024

J. Econ. Impact

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High-quality products are always in demand for both local and international markets. The demand for such products can be increased by the product sales at a domestic level. It can also be helpful to increase the export flows of an economy and hence improve the trade flows. Other factors have a moderating role in determining the relationship between export product quality and trade flows. The objective of this study is to examine the role of moderating variables, which are used to check the strength of the above relationship. There are three variables: financial constraints, firm heterogeneity, and R&D activities are taken as moderators. For this purpose, the data is taken from annual financial reports of non-financial firms which are listed on the Pakistan Stock Exchange. Also, some country-level data is taken from the Pakistan Economic Survey. The objective of the study was achieved by using panel techniques Fixed Effect, Random Effect Model for the period of 1999 to 2020. It is found that firm heterogeneity and R&D activities have positive and financial constraints have negative but significant effects on strengthening the relationship between product quality and export flows. Based on our findings, the government should provide R&D funds and financial aid programs for new investors to improve product quality and increase their sales in local and international markets.

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“…Alternative sources of credit may not have all the necessary information about these firms, thereby increasing cost of capital appropriate to their real risk. This restriction on access to credit leads to a decrease in capital expenditure investments (Brunnermeier, 2009;Chava & Purnanandam, 2011;Carvalho et al, 2015;Fernández et al, 2018;Mercatanti et al, 2019;Guevara et al, 2021). Based on this: H1 -In a financial crisis environment, firms with high banking dependence have a greater reduction in investment.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Faced with uncertainties, there was also a reduction in demand from customers. This set of factors ends up reducing the level of investment of firms (Campello et al, 2010;Ivashina & Scharfstein, 2010;Kahle & Stulz, 2013;Bo et al, 2014;Chen et al, 2020;Guevara et al, 2021).…”

Section: Introductionmentioning

confidence: 99%

Corporate Investment in the Global Financial Crisis

Jucá

Fishlow

2021

Journal of Business Economics and Management

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This paper exams the impact of high levels of bank debt, leverage, credit obtained from government banks and cash reserves in the long and short terms investments of firms in the main Latin American countries after this crisis. For this purpose, it is applied a difference-in-differences test in a sample of more than 500 public and private firms, using hand-collected data of firms’ governmental bank dependence. The review period considers five previous (2003–2007) and subsequent years (2008–2012) to the crisis. The major results are reduction of long-term investments for firms with greater banking dependence, as well as short-term investments for firms with a higher level of cash reserves. Besides, firms that are more reliant on government-owned banks reduce capital expenditures. Differently from other studies, this one examines the impact of the last global financial crisis on the firms´ investment, considering its dependence of bank debt of institutions that belongs to the government or not. Understanding the mechanisms available to emerging economies can shed light on new countercyclical policies of governments and changes in the legislations of the financial system.

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Effects of the degree of financial constraint and excessive indebtedness on firms’ investment decisions

Cited by 15 publications

References 45 publications

Distinctive determinants of financial indebtedness: evidence from Slovak and Czech enterprises

Distinctive determinants of financial indebtedness: evidence from Slovak and Czech enterprises

The Role of Moderators on Product Quality and Export Flows: The Case of Pakistan

Corporate Investment in the Global Financial Crisis

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