Financing constraints and investment efficiency: evidence from a panel of Canadian forest firms

Islam, Abu Reza Mohammad; Luo, Robin H.

doi:10.1080/00036846.2018.1478387

Cited by 12 publications

(12 citation statements)

References 40 publications

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“…Given the aforementioned literature, FL makes managers be cautious about the amount of investment owing to the increasing risk and blocking financial resources (Lang et al, 1996); therefore, it directly affects future investment amounts. On the other side, FL can also affect future investment through future FC (Islam and Luo, 2018;Choi et al, 2019) because the purpose of financing is to provide financial resources for investment decisions. Moreover, FC translates into the unavailability of financial resources, also FL directly affects future FC; therefore, it is expected that FL relates to future investment through the channel of future FC.…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

“…Moreover, STD facilitates future external financing (Myers, 1977) through decreasing debt overhang risk (Khaw and Lee, 2016;Alanis et al, 2018). Incidentally, FC has a considerable impact on investment strategies (Almeida and Campello, 2007;Hovakimian and Hovakimian, 2009;Islam and Luo, 2018). Therefore, FL affects future investment by considering the moderating role of STD through two channels: (1) indirect impact through FC (2) direct impact through blocking free cash flow.…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

“…High financing costs would reduce managers' ability to undertake profitable projects as far as the investment decisions are not independent of financing strategies in imperfect markets (Deari and Deari, 2010;Rahaman, 2011). Therefore, financing constraints (FC) reduce investment (Hubbard, 2001;Almeida and Campello, 2007;Carvalho, 2018;Alm et al, 2019), which, in turn, leads to the under-investment problem (Verdi, 2006;Islam and Luo, 2018;Li et al, 2019). As a result, FC in extreme circumstances may drive firms into financial distress and bankruptcy point (Gordon, 1971;Farooq, 2015;Sheikh and Qureshi, 2017).…”

Section: Introductionmentioning

confidence: 99%

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Financial leverage, debt maturity, future financing constraints and future investment

Poursoleiman

Mansourfar

Abidin

2020

IMEFM

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Purpose This paper aims to investigate the impact of debt maturity on the relationship between financial leverage and future financing constraints. Moreover, it attempts to analyze the moderating role of short-term debt and the mediating role of future financing constraints in the relationship between financial leverage and future investment. Design/methodology/approach To test the moderating role of debt maturity, all the observations are divided into two groups based on short-term debt to total debt ratio. Moreover, Sobel, Aroian and Goodman tests are used to analyze the mediating role of future financing constraints. The sample used in this research includes firms listed on the Tehran Stock Exchange from 2006 to 2018. Findings It is shown that financial leverage is inversely (positively) related to future financing constraints for firms with higher (lower) use of short-term debt and, short-term debt moderates the relation between financial leverage and future investment. The findings also indicate that future financing constraints carry the influence of financial leverage to future investment. Originality/value In an imperfect market where financing is not independent of investment, it is highly required to carry out some studies on the role of different financing scenarios in firms and their impacts on future financing and investment; therefore, this paper is conducted to address one of the most important issues in the capital market, which is almost the pioneer study in this field.

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Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Financial leverage, debt maturity, future financing constraints and future investment

Poursoleiman

Mansourfar

Abidin

2020

IMEFM

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“…A recent study by Pyles and Khieu (2018) confirms that constrained REIT firms hold relatively greater cash than their unconstrained counterparts do. Islam and Luo (2018) apply the stochastic frontier approach to investigate to what extent Canadian forest firms face financing constraints for the 2004-2014 period. They report that investment efficiency is approximately 60%, and the time-varying patterns of investment efficiency in three major provinces are significantly different.…”

Section: Literature Reviewmentioning

confidence: 99%

Financing Constraints and Investment Efficiency in Canadian Real Estate and Construction Firms: A Stochastic Frontier Analysis

2021

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This article models the behavior of 179 listed and unlisted real estate and construction firms (RECFs) in Canada to study how financial constraints impact the investment efficiency of these real estate firms during the 2004–2020 period. Investment efficiency is interpreted here as the ability and ease of a firm to convert investment opportunities into actual investments. The results show that Canadian RECFs are strongly dependent on two sources of financing: equity financing and debt financing. Equity financing helped ease financing constraints due to a cash flow increase but was unlikely to decrease the uncertainty of follow-up financing of investments of these companies. This study constructed an investment efficiency index (IEI) for all 179 RECF firms. The results showed an investment rate loss of approximately 62% of the RECF firms due to financing constraints during the above period. The IEI of RECFs in Canada has demonstrated a descending pattern, and the investment efficiency level slipped from 0.47 to 0.40 from 2004 to 2020. Furthermore, a regional analysis demonstrates that compared with the RECFs located in Ontario, the investment efficiency indices of RECFs in Quebec and British Columbia were more volatile. Small RECFs demonstrated a very steady trend in investment efficiency during the sample period, which was completely different from the patterns displayed by large and medium RECFs.

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“…Consequently, the effect of financial constraints on investment efficiency has become an intensely researched topic in corporate finance. Some studies claim financing constraints cause firms to make losses (Islam and Luo, 2018), while others suggest that constrained firms tend to forgo several investment opportunities. Schiantarelli (1996) and Bhaumik et al (2012) determined that mature firms also experience investments' high responsiveness to changes in internal funds.…”

Section: Introductionmentioning

confidence: 99%

The impact of financial constraints on investment efficiency in South Africa

2022

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Shifts from firm-level investment efficiency occur due to market imperfections and informationasymmetry. This translates to an increased cost of capital, which leads to over or under-investments. This study demonstrates the absence of a direct association between investmentefficiency and financial constraints in African firms, complementing the efficient markethypothesis. We observed firms across different industries listed on the JSE from 2009 to 2019.Empirical results from panel data analysis reveal that financial constraints drive improvedinvestment levels and firms in this region depend on external funds – specifically credits – toinvest.

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Financing constraints and investment efficiency: evidence from a panel of Canadian forest firms

Cited by 12 publications

References 40 publications

Financial leverage, debt maturity, future financing constraints and future investment

Financial leverage, debt maturity, future financing constraints and future investment

Financing Constraints and Investment Efficiency in Canadian Real Estate and Construction Firms: A Stochastic Frontier Analysis

The impact of financial constraints on investment efficiency in South Africa

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