Investment-cash Flow Sensitivities, Credit Rationing and Financing Constraints PDF Download
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Author:
Publisher:
ISBN: 9789524624466
Category :
Languages : en
Pages : 64
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Author:
Publisher:
ISBN: 9789524624466
Category :
Languages : en
Pages : 64
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Author: Leonardo Becchetti
Publisher:
ISBN: 9789524624473
Category :
Languages : en
Pages :
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Author: Heitor Almeida
Publisher:
ISBN:
Category :
Languages : en
Pages : 26
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A key assumption in the existing theoretical work on firm financial constraints is that these constraints translate entirely into higher costs of funds. This approach poses two types of difficulties to the research on that topic. First, it inadvertently narrows our understanding about financial constraints since, in practice, firms often face credit rationing. Second, it is a matter of debate whether such an approach can deliver unambiguous implications for corporate investment. The current paper develops a theory explaining the relationship between corporate investment and cash flow when firms face credit quantity constraints. We show that when firms' investments and use of external finance are endogenously related, investment-cash flow sensitivities increase as credit constraints are relaxed. From an empirical perspective, our analysis suggests a consistent way of identifying the impact of financial constraints on corporate investment. Our predictions, however, are markedly different from those examined in most empirical studies in this area.
Author: Steven N. Kaplan
Publisher:
ISBN:
Category : Cash flow
Languages : en
Pages : 24
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Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.
Author: Ann E. Harrison
Publisher: World Bank Publications
ISBN:
Category : Capital movements
Languages : en
Pages : 54
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Book Description
Firms often cite financing constraints as one of their primary obstacles to investment. Global capital flows, by bringing in scarce capital, may ease host-country firms' financing constraints. However, if incoming foreign investors borrow heavily from domestic basnks, direct foreign investment (DFI) may exacerbate financing constraints by crowding host country firms out of domestic capital markets. Combininb a unique cross-country firm-level panel with time-series data on restrictions on international transactions and capital flows, we find that different measures of global flows are associated with a reduction in firm-level financing constraints. First, we show that one type of capital inflow--DFI--is associated with a reduction in financing constraints. Second, we test whether restrictions on international transactions affect firms' financing constraints. Our results suggest that only one type of restriction--those on capital account transactions--negatively affect firms' financing constraints. We also show that multinational firms are not financially constrained and do not appear to be sensitive to the level of DFI. This implies that DFI eases financing constraints for non-multinational firms. Finally, we show that DFI only eases financing constraints in the non-G7 countries.
Author: Mr.Vadim Khramov
Publisher: International Monetary Fund
ISBN: 1475502877
Category : Business & Economics
Languages : en
Pages : 28
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This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm's assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms' balance sheets. This paper deepens our understanding of firms' investment behavior.
Author: Rozalia Pal
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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In this paper we describe a model of optimal investment of various types of financially constrained firms. We show that the resulting relationship between internal funds and investment is non-monotonic. In particular, the magnitude of the cash flow sensitivity of the investment is lower for firms with credit rationing compared to firms that are able to obtained short-term external financing. The inverse relationship is driven by the leverage multiplier effect. A positive cash flow shock increases the short-term borrowing capacity of the firm, which in turn has a positive effect on investment and firm's growth. Moreover, the leverage multiplier effect is the highest for firms relying on short-term credits and it is lower for firms that are able to obtain long-term financing. Analysing a large euro area data set we find strong empirical support for our theoretical predictions. The results also help to explain some contrasting findings in the financial constraints literature.
Author: Guiying Wu
Publisher:
ISBN:
Category : Cash flow
Languages : en
Pages : 192
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Author: Joshua Robert Pierce
Publisher:
ISBN:
Category : Advertising
Languages : en
Pages : 296
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Author: Stephen R. Bond
Publisher:
ISBN:
Category :
Languages : en
Pages : 29
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