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First, the purpose of this study is to examine the relationship between foreign-currency debt and firms' financing constraints for India, the second-largest emerging market economy after China. Second, this study provides insights into how firms' financing constraints evolve prior to, during and after foreign currency borrowing. Third, it demonstrates the extent to which banks' ownership status and firms' characteristics influence the relationship between foreign currency borrowing and firms' financing constraints.

This study uses detailed balance sheet data for 2,512 nonfinancial listed firms in India for the 1996–2016 period to provide new evidence on the relationship between foreign currency borrowing and firms' financing constraints. This study uses a well-known measure of firms' financing constraints, the sensitivity of investment to internal cash flows (Fazzari et al., 1988, 2000; Hubbard, 1999; Love, 2003).

Financing constraints tend to be higher for firms with foreign currency debt exposure compared to other firms. Financing constraints are higher prior to new foreign currency borrowing (FCB), but decrease subsequently. Firms that have relationships with privately owned banks or foreign banks have higher financing constraints when undertaking new FCB than those with exclusive relationships with government-owned banks. Financing constraints for firms with FCB are higher during domestic credit booms than other periods. Nonmanufacturing firms and those with lower than median export revenues and higher than median tangible assets experience greater financing constraints compared to other firms when they undertake FCB.

The findings of this study suggest that although firms which borrow in foreign currencies are initially more financially constrained than other firms, the foreign currency borrowing reduces their financing constraints. The findings on how global and domestic macroeconomic conditions and firm-specific characteristics influence the relationship between financing constraints and foreign currency borrowing can provide directions for policy to better leverage the benefits of international financial integration.

The purpose of this paper is to investigate whether and how banks’ financial constraints affect their cash tax avoidance. The authors hypothesize that banks engage in more tax planning to generate additional cash to mitigate their financial constraints.

The authors use a sample of US banks to conduct the panel regression analysis. The authors measure the bank tax avoidance using the cash effective tax rate and measure the bank financial constraints using the Z-score and annual payout ratio. The authors further use the implementation of the Dodd–Frank Act as a quasi-natural experiment to conduct the difference-in-difference analysis.

The authors document that financially constrained banks exhibit lower cash effective tax rates. The authors further show that banks facing greater financial constraints are less likely to pursue tax-saving activities following the Dodd–Frank Act. Moreover, the authors find that non-performing loans increase the influence of financial constraints on tax avoidance, while a financial crisis amplifies the impact of financial constraints on bank cash tax savings.

By extending previous research on financial constraints and tax planning, this paper is the first study to recognize financial constraints, along with the Dodd–Frank Act, as determinants of banks’ tax avoidance. This study informs policymakers about the regulation of tax avoidance in the banking industry and sheds light on possible future research on banks’ tax-planning strategies.

The purpose of this paper is to investigate the asymmetric adjustment of cash holdings in Pakistani firms for above and below target firms.

The study employs generalized method of moments (GMM) to investigate the adjustment of cash holdings.

The study found that the firms which hold cash above the optimal level of cash holdings have higher speed of adjustment than the firms which hold cash below the optimal level. Financially constrained (FC) firms also adjust their cash holdings faster than financially unconstrained (FUC) firms but high speed of downward adjustment does not remain persistent after financial constraints are controlled. Findings of this study reveal this asymmetric adjustment in above and below target firms and extend these results in FC and FUC Pakistani listed firms, respectively.

The conclusion of this study has been derived under certain limitations. There is a vast space to extend this study in different dimensions. Firms operating in capital-intensive industries may provide different results for financial constraints because their policy designing would be quite different from other firms.

This study contributes to cash holdings research in Pakistan by exploring the adjustment behavior of cash holdings across Pakistani non-financial firms using econometric modeling. Downward adjustment rate is supposed to be higher than upward adjustment rate and this rate is tested using dynamic panel data model. Similarly, it is inferred that this relationship holds for above target firms even after including the financial constraints in the presented model.

Based on a sample of 1,435 Vietnamese listed firms over the period from 2005 to 2017, this study examines the sensitivity of unexpected investment to free cash flow and its mechanism.

We tested three hypotheses using two-step system-GMM to investigate investment–cash flow sensitivity for various firm scenarios while accounting for confounding variables.

Firms with negative free cash flow are more likely to engage in underinvestment; conversely, overinvestment is found primarily in firms with positive free cash flow. In terms of the mechanism, while underinvesting decisions are caused mainly by financial constraints, overinvesting behaviour primarily resulted from agency problems, typically in the form of principal-principal conflicts. Interestingly, under the impact of negative cash flow observations, financial constraints tend to decrease investment–cash flow sensitivity. Conversely, the agency costs hypothesis reveals that agency problems are more likely to increase investment–cash flow sensitivity.

These findings not only contribute to the current corporate literature but also provide some important practical implications for stock market investors, corporate managers, and policy-setting bodies, specifically in the Vietnamese market.

This study aims to investigate the influence of macro-financial conditions on firm-level capital allocation as a micro-transmission mechanism of monetary policy in Vietnam.

The authors employ a dynamic model of investment based on the Euler equation approach that allows for financial frictions. The financial conditions are proxied by a composite index of the current states of financial variables, including interest rates, exchange rates, stock prices, and credit demand – which captures short-term shocks in monetary transmission channels. Corporate financing constraints, as a reflection of financial frictions, are measured by the sensitivity of investment to internal funds, which are extensively examined in terms of both negative and positive cash flows.

In the presence of a non-monotonic (or U-shaped) investment–cash flow relation, the empirical evidence from Vietnamese listed firms indicates that financial conditions affect investment behavior for only firms with negative cash flows, in the sense that better financial conditions alleviate the level of “negative” financing constraints (i.e. the sensitivity of investment to negative cash flow). This effect is greater for larger firms and more likely pronounced for firms without state ownership.

This study contributes to the literature on corporate financing constraints in a manner of considering the macroeconomic dimension, specifically exploring the asymmetric impacts of financial conditions on the investment sensitivity to cash flow.

A large body of empirical literature has identified the key drivers of corporate cash holdings. The extant literature posits that the existence of real options significantly influences a firm's demand for liquidity. The literature, however, has relied on indirect proxies to assess this influence. The purpose of this paper is to provide a direct method for assessing this hypothesis. It is posited that firms with valuable real options hold excess cash and liquid assets, relative to firms lacking such opportunities.

The author utilizes a procedure originally proposed by Copeland and Antikarov to identify firms with valuable real options. This procedure assumes that an option's value will rise with its underlying uncertainty and with firm's managerial flexibility, i.e. discretion over the timely exercise of the option. Without a large cash hoard, a firm with “in‐the‐money” real options may face “financing constraints” that result in foregone or delayed exercise of these options. The author extends the Copeland and Antikarov procedure to account for the firm's financing constraints. Using data from a large sample of US companies, new insights are presented on how managerial flexibility, financing constraints, and the value of the firm's real options drive its cash holdings to levels that may appear to be “irrational,” if these factors are ignored.

Cash holdings are consistently higher for firms' valuable real options. All else being the same, financially unconstrained firms hold more cash. It is also shown that: an increase in a firm's weighted average cost of capital will lead to higher cash holdings; firms with higher market power (relative sales) hold less cash; and firms with less operational flexibility (higher fraction of fixed‐to‐total assets) hold less cash. Additional results are shown in the paper.

The paper shows that the existence of valuable real options leads to an unambiguous increase in corporate cash holdings. Whether this addition to firm's cash holdings is capitalized into its equity price is an open and challenging question that deserves further study. Other promising areas for improving this line of research include: developing other measures of managerial flexibility; partitioning the volatility‐flexibility into high, intermediate, and low categories (like the Kaplan and Zingales index); and expanding the analysis to cover a longer time period. The author believes that the results are robust and will be confirmed with these and other extensions.

This is the first paper that considers the effect of a firm's real options on its demand for liquid assets and cash.

The purpose of this paper is to examine how information asymmetry driven by earnings quality affects corporate cash holdings. It also investigates the role that financial constraints play in this effect.

The paper examines a large sample of 6,501 observations of 741 firms listed on Euronext Paris over the period 2000–2015. Earnings quality is computed using the Jones model performance-matched discretionary accruals developed by Kothari et al. (2005): the larger the absolute value of discretionary accruals, the lower the accruals quality.

The study finds that firms with poor accruals quality hold more cash and that cash holdings in firms of low reporting quality are higher under financial constraints. These results indicate that firms tend to increase their cash reserves in the presence of high information asymmetry which is notably driven by low accounting quality. The findings also suggest that information asymmetry associated with low reporting quality is greater when firms also have strong financial constraints. The study’s conclusions are consistent with the precautionary motive for cash holdings.

The results would enhance practitioners’ awareness of the importance of accounting choices in the management of cash policies. It would also give researchers an incentive to further explore how these policies are influenced by the precautionary behavior of managers.

This paper is the first work to investigate the effect of accruals quality on corporate cash holdings in the French equity market, which typically has a poor information environment resulting in high information asymmetry. Moreover, the role of financial constraints in this effect has not yet been explored.

The Micro, Small and Medium Enterprises (MSMEs) counter numerous financial obstacles concerning business financing and cash flow management. The study, therefore, intends to examine the level of perceived severity of financial constraints on the business growth of enterprises, in terms of sales, profitability and asset growth. An attempt is made to study the influence of owner and firm attributes as the determinants of financial constraints faced by MSMEs.

The data were collected from MSME owners of Northern India through a self-administered questionnaire. In total, 213 responses were analysed using partial least squares-structural equation modelling (PLS-SEM) technique through SmartPLSv2.

The findings advocate the role of owner and firm attributes in the severity of financial constraints experienced by the MSME owners. Most importantly, the study establishes a strong link between owner and firm attributes and cash flow constraints. Further, the paper confirms the negative influence of financing and cash flow problems on the growth of the firm.

The evaluation and categorisation of perceived financial challenges into meaningful dimensions generate value to the problematic area of MSME operations. Thus, the findings are useful for the policymakers and researchers to contemplate the financial vulnerability of MSMEs.

The empirical findings of the present study add worth to the limited evidence of the relationship between owner and firm attributes and severity of cash flow constraints faced by the Indian MSME owners.

The purpose of this paper is to investigate the relationship between cash holdings, investment opportunities and financial constraint with audit fees in Iran.

In order to collect data, all manufacturing companies listed on the Tehran Stock Exchange are used to test the hypotheses during 2008–2015. Panel data and combined data regression model were used for data analysis. Tests were performed using R statistical software.

The results obtained from the statistical analysis of research hypotheses indicated that there is a significant relationship between cash holdings and audit fees. Furthermore, the relationship between cash holdings, financial constraints and audit fees was significant. In addition, there was no significant relationship between cash holdings, investment opportunities and audit fees.

The current study employed a unique topic in terms of a developing country, and the results may give strength to other developing nations.

The purpose of this paper is to examine the effects of financial flexibility as represented by excess cash holdings and debt capacity upon firm returns after periods of high market uncertainty.

Days of high uncertainty are identified from 1987-2011 using the VXO Index (implied volatility of the S&P 100) yielding approximately 45,000 firm events. The main variables of interest are excess cash (Duchin et al., 2010) and debt capacity. Two financial constraint indexes are used as controls in a cross-sectional OLS regression.

The precautionary value of cash during and after times of uncertainty is beneficial. A positive relationship exists for periods of up to two years following the initial day of high uncertainty. Positive BHRs exist on a zero-cost trade investing in a portfolio of high excess cash firms and shorting a portfolio of cash constrained firms. The value of excess debt capacity, on the other hand, is harder to discern; positive profits are obtainable on a zero-cost trade while regression estimates are typically insignificant on average.

This paper expands the financial flexibility literature by testing the effects of financial flexibility on returns following days of high market uncertainty.