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Article
Publication date: 14 March 2024

Jingbin Wang, Xinyan Yao, Xuechang Zhu and Baitong Li

This study explores the intricate relationship between inventory leanness, financial constraints and digital transformation in listed Chinese manufacturing firms.

Abstract

Purpose

This study explores the intricate relationship between inventory leanness, financial constraints and digital transformation in listed Chinese manufacturing firms.

Design/methodology/approach

Using a large panel data collected from 2,563 Chinese listed manufacturing enterprises over the period from 2012 to 2021, this research employs the instrumental variable method combined with two-stage least squares estimators to explore the U- shaped relationship between inventory leanness and financial constraints. Furthermore, the moderating role of digital transformation is demonstrated.

Findings

Contrary to traditional assumptions, our research uncovers a U-shaped relationship between inventory leanness and financial constraints, indicating that excessive inventory reduction can exacerbate financial constraints. Digital transformation plays a significant moderating role, particularly in highly digitalized environments.

Practical implications

Our findings have practical significance for top managers and policymakers. We advocate for a balanced approach to lean inventory management to mitigating financial constraints. The study emphasizes the pivotal role of digital transformation in alleviating the impact of inventory leanness on financial constraints, highlighting the need for digital transformation strategies.

Originality/value

This research provides a comprehensive analysis of inventory leanness, financial constraints and digital transformation dynamics. It challenges conventional thinking by revealing the nonlinear nature of the inventory leanness–financial constraints relationship. The concept of moderation highlights the moderating effect of digital transformation. This study offers practical guidance for practitioners and policymakers.

Details

Journal of Manufacturing Technology Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-038X

Keywords

Article
Publication date: 29 November 2023

Sedki Zaiane and Halim Dabbou

The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D…

Abstract

Purpose

The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D) investment through two measures of financial constraints.

Design/methodology/approach

This study is based on a sample of 90 French firms for the period extending from 2008 to 2020. The authors employ a panel threshold method to analyze whether the impact of financial constraints on R&D investment depends on the level of financial constraints or not.

Findings

Using SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019) as measures of financial constraints, the authors demonstrate that the relationship between financial constraints and R&D investment is nonlinear. Moreover, the authors find that executive stock options mediate partially the relationship between financial constraints and R&D investment. More specifically, the authors show that stock options could play two roles depending on the level of the financial constraints; inconsistent mediation for firms with low/medium level of financial constraints and partial mediation for highly constrained firms.

Originality/value

This paper is the first to the best of the authors' knowledge to investigate the nonlinear relationship between financial constraints and R&D investment as well as the mediating role of executive stock option using dynamic panel threshold models.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

Keywords

Open Access
Article
Publication date: 6 October 2023

Ijaz Ur Rehman, Faisal Shahzad, Muhammad Abdullah Hanif, Ameena Arshad and Bruno S. Sergi

This study aims to empirically examine the influence of financial constraints on firm carbon emissions. In addition to the role of financial constraints in firm-level carbon…

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Abstract

Purpose

This study aims to empirically examine the influence of financial constraints on firm carbon emissions. In addition to the role of financial constraints in firm-level carbon emissions, this study also examines this influence in the presence of governance, environmental orientation and firm-level attributes.

Design/methodology/approach

Using pooled ordinary least square, this study examines the impact of financial constraints on firm-level carbon emissions using a panel of 1,536 US firm-year observations from 2008 to 2019. This study also used two-step generalized method of moment–based dynamic panel data and two-stage least square approaches to address potential endogeneity. The results are robust to endogeneity and collinearity issues.

Findings

The results suggest that financial constraints enhance the carbon emissions of the firms. The economic significance of financial constraints on carbon emissions is more pronounced for the firms that do not report environment-related expenditure investment and those that are highly leveraged. The authors further document that firms with a nondiverse gender board signify a statistically significant impact of financial constraints on carbon emissions. These results are also economically significant, as one standard deviation increase in financial constraints is associated with a 3.340% increase in carbon emissions at the firm level.

Research limitations/implications

Some implicit and explicit factors like corporate emissions policy and culture may condition the relationship of financial constraints with carbon emissions. Therefore, it would be worthwhile to consider these factors for future research. In addition, it is beneficial to identify the thresholds and/or quantiles at which financial constraints may significantly make a difference in enhancing carbon emissions.

Practical implications

The findings offer policy implications for investment in stakeholder engagement for capital acquisitions, thereby effectively enforcing environmental innovation and leading to a reduction in carbon emissions.

Originality/value

This study integrated governance and environment-oriented variables in the model to empirically examine the role of financial constraints on the carbon emissions of the firms in the USA over and above what has already been documented in the earlier literature.

Details

Social Responsibility Journal, vol. 20 no. 4
Type: Research Article
ISSN: 1747-1117

Keywords

Article
Publication date: 1 February 2023

Sakti Ranjan Dash, Maheswar Sethi and Rabindra Kumar Swain

The purpose of this paper is to examine the impact of working capital management (WCM) on profitability under different financial conditions (constraint/unconstraint) and WCM…

Abstract

Purpose

The purpose of this paper is to examine the impact of working capital management (WCM) on profitability under different financial conditions (constraint/unconstraint) and WCM policy (aggressive/conservative). Furthermore, the study investigates the existence of optimal working capital levels under different financial conditions and WCM policy.

Design/methodology/approach

Two-step system generalized method of moments and fixed effect models are used to analyze the data collected from Prowess database from 2011 to 2020 for a sample of 1,104 Indian manufacturing companies.

Findings

The study finds an inverted U-shaped relationship between working capital and profitability in all financial conditions and working capital policy. This finding advocates the existence of an optimal level of working capital that equates the costs and benefits of holding working capital to maximize the companies’ profitability. However, holding working capital beyond the optimal level negatively affects profitability. Companies under financial constraints with aggressive working capital policies have the lowest optimal cash conversion cycle (CCC). Furthermore, the relationship of working capital with profitability and the optimal CCC varies owing to firm age and industry group.

Originality/value

To the best of the authors’ knowledge, this is the first paper that incorporates the impact of working capital on firm’s performance from both financial constraint (unconstraint) and aggressive (conservative) working capital policy perspectives in the Indian context. Furthermore, this study also contributes in terms of reflecting the effect of firm age and industry in determining the optimum CCC of the firms.

Details

Journal of Indian Business Research, vol. 15 no. 3
Type: Research Article
ISSN: 1755-4195

Keywords

Article
Publication date: 9 August 2023

Sedki Zaiane, Halim Dabbou and Mohamed Imen Gallali

The purpose of this study is to examine the nonlinear relationship between financial constraints and the chief executive officer (CEO) stock options compensation and to analyze…

Abstract

Purpose

The purpose of this study is to examine the nonlinear relationship between financial constraints and the chief executive officer (CEO) stock options compensation and to analyze whether the impact of financial constraints on the CEO stock options compensation changes at certain level of financial constraints or not.

Design/methodology/approach

This study is based on a sample of 90 French firms for the period extending from 2008 to 2019. To deal with the non-linearity, the authors use a panel threshold method.

Findings

Using different measures of financial constraints [KZ index (Baker et al., 2003), SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019)], the results reveal that the impact of the financial constraints (SA index and FCP index) is positive below the threshold value and it becomes negative above.

Research limitations/implications

The non-linearity between financial constraints and CEO stock options shows that the level of financial constraints can be a major determinant of the CEO compensation structure. More specifically, this study sheds light on the key role played by the level of financial constraints and how this latter influence management decisions.

Originality/value

This paper is the first to the best of the authors' knowledge to examine the nonlinear relationship between financial constraints and the CEO stock options compensation using a panel threshold model.

Details

EuroMed Journal of Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1450-2194

Keywords

Article
Publication date: 26 October 2021

Baba Adibura Seidu, Yaw Ndori Queku and Emmanuel Carsamer

This paper focused on financial constraints scenario and tax planning activities of banks in Ghana. The study explores how financial constraints could motivate the banks to pursue…

Abstract

Purpose

This paper focused on financial constraints scenario and tax planning activities of banks in Ghana. The study explores how financial constraints could motivate the banks to pursue tax planning mechanism and the implication on tax revenue mobilisation.

Design/methodology/approach

The paper followed generalised method of moments and fixed effect estimators to investigate the financial constrained-tax planning activity nexus. Simulation approach is adopted to provide financially constrained bank scenario. Besides contemporaneous analysis, sensitivity analysis is conducted to determine time varying effect. Data from all the 20 commercial banks which have operated from 2008 to 2018 were used.

Findings

The paper found that when banks are faced with financial constraints, they exhibit lower cash-effective-tax-rate. The decomposition analysis also revealed that financially constrained banks are likely to take on both short- and long-term tax planning opportunities. The paper also found evidence of persistence in the tax planning activities under financial constrained scenario.

Originality/value

This paper is one of the few studies which have extended the tax planning literature to the Ghanaian banking sector. Further novelty is seen from the development of financial constraint scenario from liquidity and solvency. Liquidity and solvency are the anchors for continuity of banking operation and sensitive to regulatory watch and sanctions. Therefore, by applying simulation approach to trigger financial constraints scenarios from these fundamental indicators reveals the extent to which commercial banks rely on tax planning opportunities to mitigate the consequence of financial constraints.

Details

Journal of Economic and Administrative Sciences, vol. 39 no. 4
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 22 February 2022

João Paulo Augusto Eça, Wilson Tarantin Júnior and Maurício Ribeiro do Valle

This paper aims to analyze whether a relationship exists between the debt structure concentration and investment–cash flow sensitivity of Brazilian companies.

Abstract

Purpose

This paper aims to analyze whether a relationship exists between the debt structure concentration and investment–cash flow sensitivity of Brazilian companies.

Design/methodology/approach

The study is based on a sample of 500 Brazilian firms (337 unlisted and 163 listed) in the 10-year period from 2010 to 2019 analyzed according to the investment–cash flow sensitivity model.

Findings

The results show evidence that companies with more concentrated debt structures tend to have lower investment sensitivity to internal cash flow. In other words, firms with a greater concentration of debts tend to have less investment–cash flow sensitivity. In general, the results are robust to (1) variation of the debt concentration proxy and the independent variable; (2) the control of fixed effects in different dimensions and (3) use of estimator for endogeneity treatment, i.e. two-stage least squares (2SLS) and generalized method of moments (GMM).

Originality/value

Various studies have investigated whether specific financing sources reduce financial constraints, but few have addressed the relationship between debt concentration and these constraints. Besides this, to the best of the authors’ knowledge, no previous study has investigated the mentioned relationship in a sample of unlisted firms. This analysis is relevant since the effects of financial constraints tend to be stronger on companies that have restricted access to the capital market.

Details

International Journal of Managerial Finance, vol. 19 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 29 December 2023

Ragia Shelih and Li Wang

This study aims to empirically explore the influence of managerial ability on crash risk and the moderating effect of financial constraints on this interrelationship.

Abstract

Purpose

This study aims to empirically explore the influence of managerial ability on crash risk and the moderating effect of financial constraints on this interrelationship.

Design/methodology/approach

Using a sample of listed corporations in the Egyptian Stock Exchange during 2018–2021, the authors test the hypotheses by using the measures and methods well established in prior literature. The authors also conduct multiple robustness analyses to ensure the validity of the empirical results.

Findings

The findings suggest that managerial ability can effectively inhibit crash risk. In addition, the authors report that financial constraints significantly dampen this relationship. Thus, financial restrictions play a striking role in hampering the managerial ability to prevent stock crashes. Furthermore, the authors document that the moderating role of severe financing constraints is more prominent during the Covid-19 pandemic period.

Originality/value

The originality of this study stems from the following considerations. First, this study enriches relevant studies on crash risk by providing evidence from one of the emerging markets in the Middle East; thereby, contrasting with those in developed economies. Second, to the best of the authors’ knowledge, this is the first study investigating the moderating impact of financing constraints on the managerial ability and crash risk nexus. Therefore, this work adds value to the extant knowledge by scrutinizing this important issue and providing novel empirical evidence.

Details

International Journal of Accounting & Information Management, vol. 32 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 10 April 2023

Feng Liu, Qizheng Wang, Zhihua Zhang, Mingjie Fang and Shufeng (Simon) Xiao

For decades, financing constraints have been a major obstacle to corporate performance. Volumes have been written about the probable factors that can help firms alleviate such…

Abstract

Purpose

For decades, financing constraints have been a major obstacle to corporate performance. Volumes have been written about the probable factors that can help firms alleviate such financial constraints. Nonetheless, empirical evidence concerning the various perspectives on how inventory control may influence financing constraints has been surprisingly scant. Using the resource- and region-based view as theoretical lenses, this study seeks to estimate the relationship between lean inventory, regional financial technology (fintech) and financing constraints.

Design/methodology/approach

Utilizing a large-scale sample of small- and medium-sized enterprises (SMEs) in China's manufacturing sector, the authors empirically test their hypotheses by using hierarchical linear regression models with multiple high-dimensional fixed effects.

Findings

Results indicate that firms with higher levels of inventory leanness and those located in more fintech-developed regions are less likely to encounter financing constraints. Furthermore, inventory leanness and regional fintech ecosystem development interact with each other to mitigate financing constraints. Moreover, inventory leanness significantly decreases firms' financing constraints when the regional fintech ecosystem is highly developed.

Originality/value

The present research contributes to the literature on the interface of supply chain management and financial management. It also provides managerial implications for policymakers and SME stakeholders.

Details

Management Decision, vol. 61 no. 8
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 17 August 2021

Le Hong Ngoc Ha and An Thai

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…

Abstract

Purpose

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.

Design/methodology/approach

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

Findings

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.

Originality/value

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.

Details

International Journal of Emerging Markets, vol. 18 no. 9
Type: Research Article
ISSN: 1746-8809

Keywords

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