Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy
Abstract 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 an...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
SpringerOpen
2019-01-01
|
| Series: | Financial Innovation |
| Subjects: | |
| Online Access: | http://link.springer.com/article/10.1186/s40854-018-0118-9 |
| _version_ | 1818772438078455808 |
|---|---|
| author | Gaurav Gupta Jitendra Mahakud |
| author_facet | Gaurav Gupta Jitendra Mahakud |
| author_sort | Gaurav Gupta |
| collection | DOAJ |
| description | Abstract 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. |
| first_indexed | 2024-12-18T10:09:21Z |
| format | Article |
| id | doaj.art-60389f65c0364eeaa42d5a5b1eaaa824 |
| institution | Directory Open Access Journal |
| issn | 2199-4730 |
| language | English |
| last_indexed | 2024-12-18T10:09:21Z |
| publishDate | 2019-01-01 |
| publisher | SpringerOpen |
| record_format | Article |
| series | Financial Innovation |
| spelling | doaj.art-60389f65c0364eeaa42d5a5b1eaaa8242022-12-21T21:11:28ZengSpringerOpenFinancial Innovation2199-47302019-01-015112810.1186/s40854-018-0118-9Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economyGaurav Gupta0Jitendra Mahakud1VIT Business School, Vellore Institute of TechnologyDepartment of Humanities and Social Sciences, Indian Institute of Technology KharagpurAbstract 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.http://link.springer.com/article/10.1186/s40854-018-0118-9Business groupsCash flowCorporate investmentFinancial constraintsFinancial developmentFirm size |
| spellingShingle | Gaurav Gupta Jitendra Mahakud Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy Financial Innovation Business groups Cash flow Corporate investment Financial constraints Financial development Firm size |
| title | Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy |
| title_full | Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy |
| title_fullStr | Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy |
| title_full_unstemmed | Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy |
| title_short | Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy |
| title_sort | alternative measure of financial development and investment cash flow sensitivity evidence from an emerging economy |
| topic | Business groups Cash flow Corporate investment Financial constraints Financial development Firm size |
| url | http://link.springer.com/article/10.1186/s40854-018-0118-9 |
| work_keys_str_mv | AT gauravgupta alternativemeasureoffinancialdevelopmentandinvestmentcashflowsensitivityevidencefromanemergingeconomy AT jitendramahakud alternativemeasureoffinancialdevelopmentandinvestmentcashflowsensitivityevidencefromanemergingeconomy |