The cash flow–investment relationship: International evidence of limited access to external finance

Aggarwal, Raj; Zong, Sijing

doi:10.1016/j.mulfin.2005.04.009

Cited by 60 publications

(31 citation statements)

References 23 publications

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“…The investment-cash flow sensitivity changes with the financing constraints. Most of the studies find the same evidence for developed as well as emerging economies (see for example, Kadapakkam et al 1998;Goergen and Renneboog 2001;Laeven 2003;Bhaduri 2005;Shen and Wang 2005;Ghosh and Ghosh 2006;Degryse and De Jong 2006;Aggarwal and Zong 2006;Cleary et al 2007). A controversy arises when Zingales (1997, 2000) and Cleary (1999) show that least financially constrained U.S. firms also exhibit greater investment-cash flow sensitivity.…”

Section: Introductionmentioning

confidence: 92%

Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy

Gupta

Mahakud

2019

Financ Innov

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This study examines the impact of financial development on corporate investment in terms of their influence on financing constraints. This study also tries to find the effect of financial development on the investment-cash flow sensitivity across the size, degree of financial constraints and group affiliation of the firm. This study employs dynamic panel data model or more specifically system generalized method of moments (GMM) estimation technique. The estimation results reveal that cash flow affects the investment decision of the company positively, which implies that Indian firms are financially constrained. Also, we observe that financial development reduces the investment-cash flow sensitivity and the effect of financial development is more prominent for small size and standalone firms. The results are robust across the period and, for both financially constrained and unconstrained firms. This study contributes to the existing literature by analyzing the impact of financial development on the role of cash flow in determining investments undertaken by the Indian firms, which is an unexplored issue from an emerging market perspective.

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Section: Introductionmentioning

confidence: 92%

Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy

Gupta

Mahakud

2019

Financ Innov

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“…Several authors have since sought to examine and manage the complexity of measuring this concept. 2 For example, Cleary (1999), and in this line other studies (Kaplan and Zingales, 1997;Aggarwal and Zong, 2006;Cleary, 2006), used discriminant analysis combining multiple indicators. However, this approach is still deterministic in identifying variables and thresholds.…”

Section: Literature Reviewmentioning

confidence: 99%

Investment cash flow sensitivity and financial constraint: a cluster analysis approach

et al. 2015

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This article sheds light on the mixed empirical evidence concerning financial constraint and investment sensitivity to cash flow. The literature suggests that measuring financial constraint is far from straightforward, and we therefore propose a cluster analysis procedure to identify unambiguous groups of constrained firms. We found the investment results to be highly sensitive to cash flow for financial constraint firms. Moreover, in line with previous research, our results showed that the traditional criteria used to identify financially constrained firms led to ambiguous interpretations. Overall, our results propose that the cluster analysis can be used to encompass the various single-criterion approaches, thereby providing a finer measurement of the financial constraint construct and deeper insight into the relationship between investment sensitivity to cash flow and financial constraint.

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“…Studies conducted for the manufacturing and health sectors, have distinguished between firms based on four principal characteristics: maturity (well established businesses are known to lenders, thus reducing information costs), size (lager firms can provide greater collateral), membership of larger groups (improving firms' access to loans), and the nature of the financial and ownership structure (e.g. Hoshi et al 1991;Calem and Rizo 1995;Aggarwal and Zong 2006). Regarding studies dealing with agriculture, farm size has also been commonly employed, as well as, amongst other variables, collateralisable assets, level of indebtedness, financial performance and human capital (Bierlen and Featherstone 1998;Benjamin and Phimister 2002;Chaddad et al 2005;Latruffe 2005;Fertı et al 2006).…”

Section: First Stage: Investment Modelmentioning

confidence: 99%

Farm Expansion in Lithuania after Accession to the EU: The Role of CAP Payments in Alleviating Potential Credit Constraints

Latruffe

Davidova

Douarin

et al. 2010

Europe-Asia Studies

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The impact of the introduction of EU Single Area Payments (SAP) on farm expansion strategy in Lithuania is investigated, utilizing farm accounting and survey data. The introduction of the SAP has a positive influence on farmers' intentions to expand their area compared to a baseline scenario of the hypothetical continuation of pre-accession policy. The switch in policy has a more pronounced effect on farms that were previously credit constrained. While the SAP has been presented as a support that is decoupled from production, its introduction may have ex post coupled effects, through an income multiplier effect on credit constrained farmers.

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The cash flow–investment relationship: International evidence of limited access to external finance

Cited by 60 publications

References 23 publications

Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy

Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy

Investment cash flow sensitivity and financial constraint: a cluster analysis approach

Farm Expansion in Lithuania after Accession to the EU: The Role of CAP Payments in Alleviating Potential Credit Constraints

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