Post by Sapphire Capital on Oct 22, 2008 20:07:30 GMT 4
Investment-Cash Flow Sensitivities, Credit Rationing and Financing Constraints
Leonardo Becchetti
University of Rome II - Faculty of Economics
Annalisa Castelli
Department of Economics - University of Rome Tor Vergata
Iftekhar Hasan
Rensselaer Polytechnic Institute (RPI) - Lally School of Management
June 24, 2008
Bank of Finland Research Discussion Paper No. 15/2008
Abstract:
The controversy over whether investment-cash flow sensitivity is a good indicator of financing constraints is still unresolved. We tackle it from several different angles and cross-validate our analysis with both balance sheet and qualitative data on self-declared credit rationing and financing constraints. Our qualitative information shows that (self-declared) credit rationing is (weakly) related to both traditional a priori factors - such as firm size, age and location - and lenders' rational decisions based on their credit risk models. We use our qualitative information on firms that were denied credit to provide evidence relevant to the investment-cash flow sensitivity debate. Our results show that self-declared credit rationing significantly discriminates between firms that do and do not have such sensitivity, whereas a priori criteria do not. The same result does not apply when we consider the wider group of financially constrained firms (which do not seem to have a higher investment-cash flow sensitivity), which supports the more recent empirical evidence in this direction.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1153326_code852818.pdf?abstractid=1153326&mirid=3
Leonardo Becchetti
University of Rome II - Faculty of Economics
Annalisa Castelli
Department of Economics - University of Rome Tor Vergata
Iftekhar Hasan
Rensselaer Polytechnic Institute (RPI) - Lally School of Management
June 24, 2008
Bank of Finland Research Discussion Paper No. 15/2008
Abstract:
The controversy over whether investment-cash flow sensitivity is a good indicator of financing constraints is still unresolved. We tackle it from several different angles and cross-validate our analysis with both balance sheet and qualitative data on self-declared credit rationing and financing constraints. Our qualitative information shows that (self-declared) credit rationing is (weakly) related to both traditional a priori factors - such as firm size, age and location - and lenders' rational decisions based on their credit risk models. We use our qualitative information on firms that were denied credit to provide evidence relevant to the investment-cash flow sensitivity debate. Our results show that self-declared credit rationing significantly discriminates between firms that do and do not have such sensitivity, whereas a priori criteria do not. The same result does not apply when we consider the wider group of financially constrained firms (which do not seem to have a higher investment-cash flow sensitivity), which supports the more recent empirical evidence in this direction.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1153326_code852818.pdf?abstractid=1153326&mirid=3