The Impact of Capital Market Imperfections on Investment-Cash Flow Sensitivity

Ağca, Şenay; Mozumdar, Abon

doi:10.2139/ssrn.686812

Cited by 59 publications

(81 citation statements)

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“…Therefore, the hindrance to constrained firms' access to external financing source may become less acute with improvement in their efficiency making them less intensely dependent on internally generated funds. This is consistent with 20 the findings of Agca and Mozumdar (2008), Attig et al (2012) and Bond and Söderbom (2013). Once these firms' efficiency reaches a certain standard, they may become financially unconstrained.…”

Section: Effect Of Efficiency On Investment Cash Flow Sensitivitysupporting

confidence: 89%

Corporate efficiency, credit status and investment

Quader

Taylor

2017

The European Journal of Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.IZA Discussion Paper No. 8285 June 2014 ABSTRACT Corporate Efficiency, Credit Status and InvestmentUsing a panel of 1122 UK firms listed on the London Stock Exchange over the period of 1981 to 2009, endogenous switching regression models (SRM) incorporating a predicted corporate efficiency index are estimated in this paper in an effort to clarify the role of cash flow in examining the impact of capital-market imperfections. It is revealed that a firm's constrained credit status changes with the improvement of its efficiency. The results further reveal that financially constrained firm's investment is comparatively more sensitive to cash flow, but this sensitivity is negatively and significantly related with corporate efficiency. These results point to the fact that high investment sensitivity to cash flow may not be solely driven by measurement error in investment opportunity, but may still be interpreted as a consequence of imperfect substitutability between internal and external financing arising from the capital market imperfections.JEL Classification: C34, D92, G14, L21

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Section: Effect Of Efficiency On Investment Cash Flow Sensitivitysupporting

confidence: 89%

Corporate efficiency, credit status and investment

Quader

Taylor

2017

The European Journal of Finance

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“…Over the same period the investment-cash ‡ow sensitivity in the US has declined substantially, a fact interpreted by several authors as an alleviation of …rms'…nancial frictions (see, e.g., Agca andMozumdar, 2008, andBrown andPetersen, 2009). Our …ndings point to these developments as an impetus of the deepening skewness of the U.S. business cycle observed during the same period.…”

Section: Introductionsupporting

confidence: 63%

Leverage and Deepening Business Cycle Skewness

Jensen¹,

Petrella

Ravn³

et al. 2017

SSRN Journal

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We document that the U.S. economy has been characterized by an increasingly negative business cycle asymmetry over the last three decades. This …nding can be explained by the concurrent increase in the …nancial leverage of households and …rms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Higher leverage increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further ampli…ed due to binding constraints. As a result, booms become progressively smoother and more prolonged than busts. We are therefore able to reconcile a more negatively skewed business cycle with the Great Moderation in cyclical volatility. Finally, in line with recent empirical evidence, …nancially-driven expansions lead to deeper contractions, as compared with equally-sized non-…nancial expansions.

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“…Empiricists have interpreted the 'I' and 'K' in the equation (1) as a firm's capital expenditures and property, plant and equipment (PP and E), respectively [4,18,[20][21][22][23][24]. However, these terms could instead refer to an alternative type of investment and its associated capital stock.…”

Section: Modified Q Models Of Investment That Account For Alternativementioning

confidence: 99%

Corporate Investment: Accounting for Alternative Propensities

Wu²

2015

J Stock Forex Trad

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We investigate whether previous evidence of the weakness of Tobin's q ratio to explain variation in capital expenditure investment stems from ignoring R&D as an alternative investment. We develop and test modified q models that account for individual firms' ex ante propensities to make these alternative types of investment. The structure of these models leads naturally to our use of propensity regression methodology in empirical tests. Using data on U.S. firms for 1974-2008, our approach yields strong and robust support for q theory. We also find evidence of the influence of financial constraints on investment.

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The Impact of Capital Market Imperfections on Investment-Cash Flow Sensitivity

Cited by 59 publications

References 0 publications

Corporate efficiency, credit status and investment

Corporate efficiency, credit status and investment

Leverage and Deepening Business Cycle Skewness

Corporate Investment: Accounting for Alternative Propensities

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