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Article
Publication date: 11 April 2019

Sung Gyun Mun and SooCheong (Shawn) Jang

The purpose of this study is to develop an index for financial constraints, specifically for restaurant firms, and to further validate the developed financial constraint index.

Abstract

Purpose

The purpose of this study is to develop an index for financial constraints, specifically for restaurant firms, and to further validate the developed financial constraint index.

Design/methodology/approach

This study used logistic regression with a composite criterion based on the dividend payout ratio, KZ index and Cleary index to estimate restaurant firms’ financial constraints. Then, a fixed-effects regression was used to verify the validity of the measurement of restaurant firms’ financial constraints.

Findings

A restaurant firm’s operating profit, financial leverage, asset tangibility, sale of fixed assets and percentage change in number of employees are critical indicators for identifying financial constraints. The results indicated that in cases with positive operating cash flows, the effect of operating cash flow on capital investments continuously decreased as restaurant firms’ financial constraints increased.

Originality/value

This study is unique in that the specific financial and operational characteristics of restaurant firms were included in the model to determine financial constraint indicators, such as sale of fixed assets and percentage change in number of employees.

Details

International Journal of Contemporary Hospitality Management, vol. 31 no. 4
Type: Research Article
ISSN: 0959-6119

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Article
Publication date: 12 February 2018

Hussein Ali Ahmad Abdoh and Oscar Varela

The purpose of this paper is to examine the effects of product market competition on capital spending (investments) financed by cash flow (CF), and the role of financial…

Abstract

Purpose

The purpose of this paper is to examine the effects of product market competition on capital spending (investments) financed by cash flow (CF), and the role of financial constraints (FC) on these effects.

Design/methodology/approach

The Herfindahl-Hirschman index of concentration measures competition. Earnings retention, working capital, the Kaplan and Zingales (1997) index and CF shortfalls measure FC. Regressions relating capital spending to competition are performed for the full sample, as well as financially constrained and unconstrained, and growth and value firms’ sub-samples. For robustness, large reductions in import tariffs are examined to exogenously measure competition, with the impact of these on capital spending tested via the difference-in-difference method.

Findings

The results show that competition fosters valuable investments when firms are financially unconstrained, especially for growth firms, and reduces these investments when they are financially constrained, especially for value firms.

Practical implications

The role of policy makers in alleviating FC should be focused toward growth firms that operate in competitive industries. As well, increasing financial pressure on value firms in competitive industries can have desirable effects, as it forces these firms to reduce investment inefficiency.

Originality/value

Many firm-specific and environmental factors drive the relation between competition and investment. Khanna and Tice (2000) find profitable firms increasing and highly levered firms decreasing investments in response to Wal-Mart’s entry into their markets. Jiang et al. (2015) suggest that environments with predictable growth drive a positive relation between competition and investments. This study claims that another factor that affects this relation is the firm’s level of FC.

Details

Managerial Finance, vol. 44 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 13 March 2017

Darshana D. Palkar

The purpose of this paper is to examine whether cash flow volatility (CFV) has a negative impact on future stock returns, and whether the CFV-return relation is different…

Abstract

Purpose

The purpose of this paper is to examine whether cash flow volatility (CFV) has a negative impact on future stock returns, and whether the CFV-return relation is different among financially constrained and unconstrained firms, by using a broad sample of 21 developed markets.

Design/methodology/approach

The study conducts portfolio analysis to test the CFV effect on returns. Risk-adjusted returns (alphas) are computed with respect to country-specific factors based on market, size, book-to-market, and momentum.

Findings

The strategy of buying stocks with low CFV while shorting stocks with high CFV delivers significant alphas in more than three-fourths of the markets. The alphas for the long-short portfolio based on CFV are positive and statistically significant in more than 70 percent of the countries among financially constrained firms, largely driven by the underperformance of high-CFV stocks. In comparison, the CFV effect is observed in less than 45 percent of the countries among financially unconstrained firms, and is largely driven by the outperformance of low-CFV stocks.

Originality/value

This study extends prior findings by providing evidence of a negative relation between CFV and stock returns in a majority of global equity markets. The evidence also suggests an important role of financial constraints in explaining this relation.

Details

Managerial Finance, vol. 43 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 17 October 2016

Yasir Riaz, Yasir Shahab, Robina Bibi and Shumaila Zeb

The purpose of this paper is to provide new insights about investment-cash flow sensitivities (ICFS) as a representative of financial constraints, by examining panel data…

Abstract

Purpose

The purpose of this paper is to provide new insights about investment-cash flow sensitivities (ICFS) as a representative of financial constraints, by examining panel data consisting of 288 listed firms in Pakistan.

Design/methodology/approach

This study uses a panel data methodology and first difference generalized method of moments to control the problems of heterogeneity and endogeneity. By five different criteria, estimations are made for full and pre-classified sub-samples. Sargan test and Arellano-Bond serial correlation statistic are used for identification and validation of instruments and model.

Findings

According to the results, the ICFS has increased monotonically with the level of financial constraints. Further, the results depict that ICFS for the constrained group is much higher as compared to the unconstrained group. Overall, the result illustrates positively significant ICFS.

Practical implications

This study confirms signs of imperfections in the capital market, which leads to financial markets inaccessibility preceded by high under-investment costs and low social and economic development. Thus, proper policy designing and instigation are necessary for the subsidies, taxation, and foreign direct investment and later for financial market development and promotion of private corporate investment.

Originality/value

Previous studies have mostly focused on developed countries where large listed companies work in well-developed financial markets and do not face severe financial constraints because of the greater market integration (Bekaert et al., 2011, 2013) and superior investor protection laws (Djankov et al., 2008; La porta et al., 1998). However, this study focuses on listed companies from the emerging Pakistani market, which will bring forth the interesting aspects of ICFS and will enhance the existing literature effectively.

Details

South Asian Journal of Global Business Research, vol. 5 no. 3
Type: Research Article
ISSN: 2045-4457

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Article
Publication date: 4 June 2018

Zhenjie Wang and Zhuquan Wang

Under the guidance of Professor Wang Zhuquan’s channel-based working capital management concept, this paper, using a sample of A-listed companies from 2007 to 2013, aims…

Abstract

Purpose

Under the guidance of Professor Wang Zhuquan’s channel-based working capital management concept, this paper, using a sample of A-listed companies from 2007 to 2013, aims to explore the possibility of measuring vendor relationships from the supply chain (channel) perspective for the first time, making universal testing for working capital management based on vendor relationships. Through systematically answering the question of who is the biggest beneficiary of working capital management based on vendor relationships and to discuss whether suppliers are more willing to provide “timely help” to weak enterprises or to exert an “icing on the cake” effect on strong enterprises, this paper provides a systematic explanation of the causes and economic consequences of working capital management based on vendor relationships.

Design/methodology/approach

The authors constructed three models to test the hypotheses of this study. Model (1) explores the cause of working capital management based on vendor relationship from three angles: market position, industry competition degree and property right. Models (2) and (3) examine the economic consequences of working capital management based on vendor relationship from the two aspects of alleviating financing constraints and improving enterprises’ sustained growth capability.

Findings

Working capital management based on vendor relationships has a more significant “timely help” effect on weak companies, which was proved by the inclination of companies with lower market positions, higher industrial competition and private ownerships to adopt working capital management based on vendor relationships. From the perspective of economic consequences, while China’s listed companies benefit generally from working capital management based on vendor relationships, the weak enterprises are the biggest beneficiaries. Based on vendor relationships, the weak enterprises can relieve financing constraints and improve continuous growth capacity. It provides further evidence that suppliers could provide “timely help” to weak enterprises.

Originality/value

The results of this study find that the competition between supply chains replaces the competition among enterprises, and suppliers are more willing to provide “timely help” to weak enterprises rather than to exert an “icing on the cake” effect on strong enterprises. In addition, the working capital management based on vendor relationships facilitates the cooperation of enterprises and suppliers and improves the overall efficiency of the supply chain.

Details

Nankai Business Review International, vol. 9 no. 2
Type: Research Article
ISSN: 2040-8749

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Book part
Publication date: 31 December 2010

Joseph Deutsch

Income polarization is a relatively new concept introduced in the literature of the measurement of income inequality. It has essential properties that may be used to…

Abstract

Income polarization is a relatively new concept introduced in the literature of the measurement of income inequality. It has essential properties that may be used to measure relative deprivation and it adds another dimension to the measurement of income inequality concerned mainly with the middle income class (Esteban and Ray, 1994). No study, however, seems to have tried to decompose by population subgroups any of the polarization indices that have appeared in the literature. This study introduces a methodology that decomposes the polarization index recently suggested by Deutsch et al. (2007) by population subgroups. This polarization index is related to the Gini index and its components so that previous results on the decomposition of the Gini index may be applied. Two main cases are examined, that of nonoverlapping groups and overlapping groups. The paper also includes an empirical analysis based on Israeli data for the period 1990–2004, which covers the case of nonoverlapping (income) groups as well as that of overlapping groups, the latter being either Jews of Western and Eastern origin or Jews and Non-Jews. The empirical analysis shows a decrease in polarization over the period 1990–2002 and an increase in polarization during the years 2002–2004. Using the Shapley methodology we analyze the contribution of the different factors to the trend in polarization observed over time.

Details

Migration and Culture
Type: Book
ISBN: 978-0-85724-153-5

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Book part
Publication date: 15 November 2018

B. Anthony Billings, Cheol Lee and Jaegul Lee

The chapter examines whether the lowering of dividend taxes as part of the US Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) resulted in an increase in…

Abstract

The chapter examines whether the lowering of dividend taxes as part of the US Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) resulted in an increase in dividend payouts at the expense of research and development (R&D) spending. Using 1,206 US firm-years data, we find that R&D investments responded negatively to higher levels of dividend payout in the post-JGTRRA of 2003 tax regime compared with the pre-regime. We also find that R&D intensity and financial constraint moderate this negative relation. That is, this relation only holds for firms in low R&D-intensity industries and firms facing high levels of financial constraint. From a tax policy perspective, even though the tax cut on dividend receipts has the benefit of lowering the cost of equity capital, the benefit appears to have come at the expense of R&D investment.

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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…

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. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 30 April 2021

Hongbin Huang, Yani Sun and Qingling Chu

The purpose of this paper is to investigate to what extent the amount, information source and the content of the microblog information disclosure of listed companies could…

Abstract

Purpose

The purpose of this paper is to investigate to what extent the amount, information source and the content of the microblog information disclosure of listed companies could impact on innovation from the perspective of financing constraints.

Design/methodology/approach

The propensity score matching (PSM) and two-stage least square (2SLS) are used in estimations to deal with the endogeneity problem.

Findings

Evidence shows that the amount of we-media information disclosure significantly drives the innovation of enterprises. The mechanism is that we-media information disclosure drives the innovation by easing the financing constraints and bringing funds to the R&D activities. Further research shows that only the original information can drive the innovation. In particular, the R&D information promotes the R&D input and innovation output more significantly.

Practical implications

The conclusion of this paper provides a reference for the listed companies to drive innovation with the help of we-media information disclosure, a new solution for the small and medium-sized listed companies in China which have difficulty in carrying out innovation activities due to financing constrains and also provides useful practical enlightenment for the government and the capital market regulatory authorities to issue relevant policies to regulate we-media information disclosure.

Originality/value

This paper introduces a new information disclosure channel--we-media into the research on influencing factors of innovation and discusses the influence of the amount, different sources and disclosure contents from we-media on enterprise innovation, which enriches the existing research on enterprise innovation influencing factors, providing a new perspective for driving enterprises to innovate.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

Keywords

Content available
Article
Publication date: 9 July 2021

K. Dhananjaya

This study aims to examine the impact of stock market valuation on corporate investment. Specifically, it attempts to understand the influence of both the fundamental and…

Abstract

Purpose

This study aims to examine the impact of stock market valuation on corporate investment. Specifically, it attempts to understand the influence of both the fundamental and non-fundamental components of stock price on firms’ investment decisions.

Design/methodology/approach

The study decomposes the market-to-book (MB) ratio into three components, namely, firm-level mispricing, industry mispricing and growth component to examine the effect of each of these components on corporate investment decisions. Based on the literature review, four testable hypotheses concerning the relationship between market valuation and corporate investment have been generated. These hypotheses have been tested on the panel data of 1,311 Indian Public Limited Manufacturing Firms using a pooled data regression model.

Findings

The study finds that both the fundamental and non-fundamental components of stock price influence the investment decisions along with the cash flow variable. The market valuation–investment nexus is more pronounced in the case of equity-dependent firms, which shows that stock valuation affects corporate investment predominantly through the equity transaction channel. Further, the positive relationship between industry mispricing and corporate investment demonstrates that the market sentiment also affects firms’ investment decisions.

Originality/value

The relationship between the different components of market value and corporate investment decisions has not been explored in India. Hence, the present study is unique because it breaks the MB ratio down into growth and mispricing components and examines the impact of each of these components on corporate investment.

Details

Vilakshan - XIMB Journal of Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0973-1954

Keywords

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