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11 – 20 of over 60000Baba 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.
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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.
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Abdul Rashid and Mahir Ahmed Hersi
The paper examines the differential effect of liquidity constraints on corporate growth using unbalanced panel data for 457 Pakistani firms over the period 2010–2017.
Abstract
Purpose
The paper examines the differential effect of liquidity constraints on corporate growth using unbalanced panel data for 457 Pakistani firms over the period 2010–2017.
Design/methodology/approach
The study uses the probability of a financial unconstrained index constructed by estimating the endogenous regression model. This approach provides a time-varying measure of financial position for all firm-year observations and takes into account the different degrees of liquidity constraints that a company faces in attaining funds from external markets. It is derived from a multivariate selection equation that simultaneously accounts for all-important features of the underlying company identified in the literature. The cash flow variable has then interacted with various groups of dummy variables for financial constraint, which allows the coefficient of cash flow to vary across firm-year observations in the different liquidity constraint categories. The two-step system-GMM estimator is applied to estimate the main empirical model.
Findings
The results of the study provide evidence of the heterogeneity in firms' growth sensitivity to internal funds, depending on the degree of liquidity constraints. Financing growth through internal funds is found to be essential for both liquidity unconstrained and constrained corporates. However, it is observed that the coefficient of cash flow is greater for firms that do not have access to external financing and it eventually decreases with reductions in the magnitude of liquidity constraints, making the least constrained corporates' growth less responsive to internal funds. The results further indicate that smaller and younger firms show higher responsiveness of growth to internal funds. This finding is mainly attributed to financial market imperfections that make external funding difficult for them.
Practical implications
The results suggest that financially constrained firms should expand their corporate size more than the magnitude of positive income shocks they encounter. The study also suggests important policy implications for liquidity-constrained firms to carefully concentrate on their financing strategies to enhance their growth. By improving the corporate's capacity for production, corporates can achieve a faster effect of a potential positive income shock on their growth.
Originality/value
This paper contributes to the literature by constructing a financial constraint index by running the endogenous regression model. It also contributes by investigating the differential impact of credit constraints on firms' growth in Pakistan and how corporate size and age affect firm growth when financial constraints and investment opportunities are controlled.
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Justin Jin, Yi Liu, Zehua Zhang and Ran Zhao
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…
Abstract
Purpose
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.
Design/methodology/approach
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.
Findings
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.
Originality/value
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.
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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.
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Yafeng Fan, Jing Jiang and Zuohao Hu
In daily life, consumers usually experience economic limitations on their consumption, which in turn results in experiencing financial constraints. The purpose of this article is…
Abstract
Purpose
In daily life, consumers usually experience economic limitations on their consumption, which in turn results in experiencing financial constraints. The purpose of this article is to examine how feeling financially constrained influences variety seeking in consumption.
Design/methodology/approach
The authors conducted three experiments to test the proposed hypotheses by applying multiple methods of manipulation of financial constraints and different measures of variety seeking.
Findings
The authors found that feeling financially constrained increases consumers’ insecurity, which in turn decreases their variety-seeking behavior. Additionally, the authors noted that individuals’ positive illusion could moderate the aforementioned effect. The negative effect of financial constraints on variety seeking only existed among consumers with a low positive illusion.
Practical implications
The findings in this article could help marketers attain a better understanding of consumers’ choices under financial constraints and could help retailers optimize their product lines and distribution.
Originality/value
This research marks the first attempt to examine the relationship between financial constraint and variety seeking. The findings make for a valuable addition to both the financial constraint and variety-seeking literature reviews. The research study also extends the literature on how insecurity and positive illusion influence individuals’ decisions in the consumption context.
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Misraku Molla Ayalew and Zhang Xianzhi
The purpose of this paper is to investigate the effect of financial constraints on innovation in developing countries. It also examines how the effect of financial constraints…
Abstract
Purpose
The purpose of this paper is to investigate the effect of financial constraints on innovation in developing countries. It also examines how the effect of financial constraints varies by sector and with main firm characteristics such as size and age.
Design/methodology/approach
The study utilizes matched firm-level data from two sources; the World Bank Enterprise Survey and the Innovation Follow-Up Survey. From 11 African countries, 4,720 firms have been included in the sample. A recursive bivariate probit model is used.
Findings
The result shows that financial constraints adversely affect a firm’s decision to engage in innovative activities and the likelihood to have product innovation and process innovation. The results point out that the extent of the adverse effect of financial constraints on innovation differs across the sectors, firm size and age groups. A firm’s innovation is also explained by firm size, R&D, cooperation/alliance, the human capital of the firm, staff training, public financial support and export. At last, the probability of encountering financial constraints is explained by firms’ ex ante financing structure, amount of collateral, accounting and auditing practices and group membership.
Practical implications
Managers should strengthen the internal and external financing capacity to reduce financing constraints and their adverse effect on innovation.
Social implications
A pending policy task for African leaders is to design and evaluate reforms that reduce the adverse effects of financial constraints on innovation.
Originality/value
This study contributes to the existing literature on financing of innovation by examining how and to what extent financial constraints affect innovation across various sectors, size and age groups.
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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.
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Jin Ho Park, Kwangwoo Park and Ronald Andrew Ratti
The purpose of this paper is to examine the effect of controlling shareholders’ ownership of firms on the firms’ financial constraints in 22 economies for the 1982-2009 period.
Abstract
Purpose
The purpose of this paper is to examine the effect of controlling shareholders’ ownership of firms on the firms’ financial constraints in 22 economies for the 1982-2009 period.
Design/methodology/approach
The authors employ a generalized method of moments-based instrumental variables estimator to estimate empirical models.
Findings
It found that the overinvestment propensity of controlling shareholders becomes less severe with an increase in cash-flow rights. It further indicates that a higher deviation between the control rights and cash-flow rights of controlling shareholders lower their overinvestment propensity, thereby lowering the firm’s financial constraints.
Originality/value
The results suggest that a higher protective legal environment for minority shareholders blocks the entrenchment of controlling shareholders and thus benefitting the firm with slackened financing constraints in the given legal origin.
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Xuechang Zhu, Jingbin Wang, Bin Liu and Xiaoyi Di
Although the adoption of lean inventory management for performance improvement has been widely recognized, sticky inventory management is still a stopgap measure for new small and…
Abstract
Purpose
Although the adoption of lean inventory management for performance improvement has been widely recognized, sticky inventory management is still a stopgap measure for new small and medium enterprises (SMEs) against survival risks. The purpose of this paper is to demonstrate the nonlinear relationship between new SMEs inventory stickiness and venture survival by focusing on the moderating effects of environmental dynamism and financial constraints.
Design/methodology/approach
Classical moderating model is employed to investigate the effects of environmental dynamism and financial constraints on the relationship between inventory stickiness and venture survival. This study uses the accelerated failure time model for survival analysis and tests the relationships based on a large set of new manufacturing SMEs in China over the period from 1999 to 2007.
Findings
The main finding is that inventory stickiness has an inverted U-shaped impact on the likelihood of survival. However, the inflection point of this inverted U-shaped relationship lies at the end of the sample. Further moderation analysis indicates that environmental dynamism positively moderates the inverted U-shaped relationship between inventory stickiness and venture survival, while financial constraints negatively moderate this relationship.
Practical implications
Most new SMEs have great potential to increase the likelihood of survival by improving inventory stickiness before achieving effective lean inventory management. Sticky inventory management can help new SMEs achieve better survival in a dynamic environment. However, new SMEs that are financially constrained should prudently implement sticky inventory management.
Originality/value
This paper contributes to the existing understanding about the likelihood of SMEs survival by addressing the role of sticky inventory management. It may be the first study to empirically demonstrate the moderating effect of environmental dynamism and financial constraints on the inverted U-shaped relationship between inventory stickiness and venture survival.
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