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Journal articles on the topic 'Financial constraints'
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Fan, Yafeng, Jing Jiang, and Zuohao Hu. "More or less? The effects of financial constraints on variety-seeking behavior." Journal of Contemporary Marketing Science 3, no. 2 (July 6, 2020): 195–205. http://dx.doi.org/10.1108/jcmars-01-2020-0004.
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PurposeIn 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/approachThe authors conducted three experiments to test the proposed hypotheses by applying multiple methods of manipulation of financial constraints and different measures of variety seeking.FindingsThe 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 implicationsThe 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/valueThis 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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Bhaduri, Saumitra N. "Investment and Capital Market Imperfections: Some Evidence from a Developing Economy, India." Review of Pacific Basin Financial Markets and Policies 11, no. 03 (September 2008): 411–28. http://dx.doi.org/10.1142/s0219091508001416.
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This paper presents a switching regression model of investment decision where the probability of a firm facing financial constraint is endogenously determined. The approach, therefore, obviates the use of a priori criteria to exogenously identify the financially constrained firms, and thereby addresses the potential misclassification problem faced in the existing literature. A sample of 576 Indian manufacturing firms, collected across 15 broad industries is used for this study. The study establishes that financially constrained firms exhibit a much higher investment-cash flow sensitivity than those identified to be unconstrained. It also probes into the possible determinants of financial constraints, and finds empirical support for its hypothesis that young, liquidity constrained and low dividend payout firms are more likely to face financial constraints, when compared to their respective counterparts. This paper also provides some insight into the impact of the ongoing liberalization program on the financial constraints faced by the Indian firms.
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Osinubi, Igbekele Sunday. "Effects of financial distress and financing constraints on trade credit provisions." Asian Review of Accounting 28, no. 4 (August 18, 2020): 545–66. http://dx.doi.org/10.1108/ara-04-2020-0058.
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PurposeExisting studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial distress is tie to financial constraints, and both financial distress and financial constraints mutually reinforce each other in their effects on trade credit provision. The purpose of this study is to evaluate the effects of financial constraint and financial distress on trade credit provisions in the UK FTSE 350 listed firms.Design/methodology/approachThis study employs panel data in the estimation of the determinants of accounts payables and accounts receivables of the UK FTSE 350 firms from 2009 to 2017.FindingsThis study finds that financial distress has significant positive effect on accounts payables and a significant negative effect on accounts receivables. Financial constraints have significant negative effect on accounts payables and a significant positive effect on accounts receivables.Practical implicationsTrade creditor desiring to maintain an enduring product-market relationship grant more concessions to customer in financial distress. The amount of trade credit that sellers provide to financially constrained firm is an increasing function of the buyer's creditworthiness. The urgent cash needs of financially distressed firms lead them to sell trade receivables to factoring company leading to reduction in trade receivables. Firm facing external financing constraints increase trade credit to customers in anticipation of cash flow inflow to enhance liquidity.Originality/valueThis study shows that financial distress and financial constraints mutually reinforce each other in their effects on trade credit provisions, and firm's financing condition contributes to divergence in trade credit policies.
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Lima Crisóstomo, Vicente, Félix Javier López Iturriaga, and Eleuterio Vallelado González. "Financial constraints for investment in Brazil." International Journal of Managerial Finance 10, no. 1 (January 28, 2014): 73–92. http://dx.doi.org/10.1108/ijmf-11-2012-0121.
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Purpose – The purpose of this paper is to verify the existence of financial constraints for investment in Brazil, an emerging market with growing international visibility. Design/methodology/approach – Using panel data methodology and generalized method of moments (GMM), the paper estimates dynamic investment models based on the Euler equation and Tobin's q for a panel data set of 199 Brazilian non-financial firms for the time period 1995-2006. Findings – Results show that Brazilian firms face financial constraints since their investments depend on internally generated funds. Results are robust to different investment models based on the Euler equation, also controlling for growth opportunities. Significant investment-cash flow sensitivity has been found for the whole sample of firms. Subsamples of firms considered as under financial constraints, according to dividend payout and equity issuance policies, have higher investment-cash flow sensitivity. Investment-cash flow sensitivity of financially constrained firms in Brazil is higher than that in the UK and in Romania, a transition economy. Originality/value – The results extend empirical evidence of financial constraints in Brazil. The paper contributes to the literature by assessing the firms’ financial constraint status on an annual basis, and by using panel data methodology and GMM to estimate dynamic models of investment that take into account the proposals of the hierarchy of finance theory. In addition, the paper controls for growth opportunities. Capital market imperfections affect firm investment in Brazil and such effects are even stronger for financially constrained firms.
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Edjigu, Habtamu Tesfaye, and Nicholas Sim. "Does the Presence of Foreign Firms Reduce Domestic Firms’ Financial Constraints in Sub-Saharan Africa?†." Journal of African Economies 28, no. 4 (February 26, 2019): 343–70. http://dx.doi.org/10.1093/jae/ejz001.
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Abstract Firms in the SSAs (sub-Saharan African countries for short) face severe financial constraints. Because financial markets in the SSAs are underdeveloped, policymakers have sought after the establishment of foreign-owned firms in their countries to help, among others, alleviate the financial constraints faced by domestic firms. However, there is no empirical evidence that speaks to the association between foreign firm presence and domestic firms’ financial constraint. Using firm-level data spanning across 36 SSAs from the World Bank Enterprise Survey, we show that the increase in foreign firm presence can ease the financial constraints of domestic firms in the SSAs. One reason is that foreign-owned firms are not only less financially constrained, they are also less likely to apply for bank loans. Therefore, an increase in foreign firm presence may reduce the competition for loans and ease the financial constraints of domestic firms by improving their borrowing success.
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Bodnaruk, Andriy, Tim Loughran, and Bill McDonald. "Using 10-K Text to Gauge Financial Constraints." Journal of Financial and Quantitative Analysis 50, no. 4 (August 2015): 623–46. http://dx.doi.org/10.1017/s0022109015000411.
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AbstractMeasuring the extent to which a firm is financially constrained is critical in assessing capital structure. Extant measures of financial constraints focus on macro firm characteristics such as age and size, variables highly correlated with other firm attributes. We parse 10-K disclosures filed with the U.S. Securities and Exchange Commission (SEC) using a unique lexicon based on constraining words. We find that the frequency of constraining words exhibits very low correlation with traditional measures of financial constraints and predicts subsequent liquidity events, such as dividend omissions or increases, equity recycling, and underfunded pensions, better than widely used financial constraint indexes.
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Du, Lixia, and Baiyang Geng. "Financial technology and financing constraints." Finance Research Letters 60 (February 2024): 104841. http://dx.doi.org/10.1016/j.frl.2023.104841.
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Wale, Letenah Ejigu. "Investment Cash Flow Sensitivity as a Measure of Financing Constraints: Evidence from Selected African Countries." Journal of Economics and Behavioral Studies 6, no. 8 (August 30, 2014): 647–57. http://dx.doi.org/10.22610/jebs.v6i8.525.
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The use of investment cash flow sensitivity as a measure of financing constraints is an unresolved research agenda. This paper endeavors to explain the conflicting evidence by using proxies for both internal financial constraint and external financial constraint measures. Data is taken from selected six African countries, a region where no previous studies are conducted. It is observed that the investment curve is Ushaped when firms are classified on the basis of internal financial constraint measure (i.e. cash flow). Using external financial constraint proxies (age, size and payout) it is found that all category of firms show positive and significant investment cash flow sensitivity. This suggests that the sampled African firms are externally financial constrained. It is concluded that the way firms are a priori classified as internal vs. external financial constrained matters. This raises the issue of whether the term financial constraints itself is a multidimensional construct.
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Farre-Mensa, Joan, and Alexander Ljungqvist. "Do Measures of Financial Constraints Measure Financial Constraints?" Review of Financial Studies 29, no. 2 (September 3, 2015): 271–308. http://dx.doi.org/10.1093/rfs/hhv052.
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Laeven, Luc. "Does Financial Liberalization Reduce Financing Constraints?" Financial Management 32, no. 1 (2003): 5. http://dx.doi.org/10.2307/3666202.
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Wale, Letenah Ejigu. "Financing Constraints And Financial Development: Evidence From Selected African Countries." International Business & Economics Research Journal (IBER) 14, no. 4 (July 14, 2015): 655. http://dx.doi.org/10.19030/iber.v14i4.9355.
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Economic theory posits that financial development eases firm level financing constraints by mitigating information asymmetry and contracting imperfections. This paper empirically tests for this notion by using firm level data from selected African countries. The sampled firms show positive and significant investment cash flow sensitivity coefficients indicating they are financially constrained. Financial development is found to have a significant and negative effect on the estimated cash flow sensitivity coefficients indicating it reduces firm financial constraints. The result further shows that such positive role of financial development is attributed to financial intermediary development and not to stock market development. A unique result to the African reality is that even firms in countries with high level of financial development are financially constrained. This implies the financial development in Africa is too weak and more policy attention is needed in this regard.
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Mulyana, Tri, and Sung Suk Kim. "IMPACT OF FINANCIAL DISTRESS AND FINANCING CONSTRAINTS ON TRADE CREDIT." JMBI UNSRAT (Jurnal Ilmiah Manajemen Bisnis dan Inovasi Universitas Sam Ratulangi). 10, no. 1 (April 30, 2023): 664–74. http://dx.doi.org/10.35794/jmbi.v10i1.44355.
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Purpose this study to examine the effect of (1) Financial Distress and (2) Financial Constraints on trade credit in companies listed on the Indonesia Stock Exchange (IDX). The Sampel in this study are all companies listed on the Indonesia Stock Exchange, except the banking and financing industries from 2020 to 2011. This study used the regression Fixed Effect Model to analyze secondary data from S&P Capital IQ. The study results show that (1) Financial Distress and Financial Constraint have a negative effect on Accounts Payable, (2) Financial Distress and Financial Constraint have a positive effect on Accounts Receivable.
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Booth, Laurence, Christos Ntantamis, and Jun Zhou. "Financial Constraints, R&D Investment, and the Value of Cash Holdings." Quarterly Journal of Finance 05, no. 04 (December 2015): 1550011. http://dx.doi.org/10.1142/s2010139215500111.
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Existing studies document that cash holdings are more valuable for financially constrained firms than for financially unconstrained firms. We investigate whether the relation between financial constraints and the value of corporate cash holdings varies across firms with different engagement in research and development activity. Among firms with R&D investment, the marginal value of cash is significantly higher for financially constrained firms than unconstrained ones, whereas this difference is weak among firms without R&D investment. Our findings are robust to alternative measures of financial constraints and alternative methods to define R&D intensity. Our study extends the cash literature by showing that the value of cash holdings is affected by the status of financial constraints and the nature of investment jointly.
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Altaf, Nufazil, and Farooq Ahmad. "Working capital financing, firm performance and financial constraints." International Journal of Managerial Finance 15, no. 4 (August 5, 2019): 464–77. http://dx.doi.org/10.1108/ijmf-02-2018-0036.
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Purpose The purpose of this paper is to examine the relationship between working capital financing and firm performance for a sample of 437 non-financial Indian companies. In addition, this study examines the impact of financial constraints on working capital financing–performance relationship. Design/methodology/approach The study is based on secondary financial data of 437 non-financial Indian companies obtained from Capitaline database, pertaining to a period of 10 years (2007–2016). This study employs two-step generalized method of moments techniques to arrive at results. Findings Results of the study confirm the inverted U-shape relationship between working capital financing and firm performance. In addition, the authors also found that the firms that are likely to be less financially constrained can finance greater proportion of working capital using short-term debt. Originality/value This study contributes to the scant existing literature by testing the impact of financial constraints on the relationship between working capital financing and firm performance, representing a typical emerging market in India.
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Lin, Hueh-Chen, Jiang-Chuan Huang, and Chun-Fan You. "Bank Diversification and Financial Constraints on Firm Investment Decisions in a Bank-Based Financial System." Sustainability 14, no. 17 (September 2, 2022): 10997. http://dx.doi.org/10.3390/su141710997.
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The purpose of the study is to investigate whether bank diversification influences borrowing firms’ financial constraints on investment decisions. It also analyzes whether the different dimensions of bank diversification could alleviate financial constraints to firm investment. Further, the role of bank diversification in achieving firm financial sustainability is explored. By applying the Two-step System GMM, this study examines the effect of changes in bank diversification on financial constraints to borrowing firm investment in a reduced-form investment model with a sample of 810 listed firms in Taiwan over the period 1997–2019. The empirical findings indicate that firms are financially constrained as well as there being a positive relationship between cash flow and investment among Taiwanese listed firms. Additionally, bank diversification significantly reduces the investment-cash flow sensitivity of firms, suggesting that bank diversification mitigates the financial constraints to borrowing firms. Moreover, the multi-diversification of a bank compared to single-diversification will have greater impact on mitigating the firms’ financial constraints on investment. Thus, bank diversification strategies are proposed in a bank-based financial system, leading to the easing of the borrowing firms’ financial constraints to investments.
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Karamat, Musarrat, Sultan Salahuddin, and Aisha Javaid. "FINANCIAL CONSTRAINTS: A MYTH OR REALITY? AN EMPIRICAL EVIDENCE FROM PAKISTAN STOCK EXCHANGE." Humanities & Social Sciences Reviews 9, no. 2 (April 29, 2021): 646–58. http://dx.doi.org/10.18510/hssr.2021.9261.
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Purpose of the study: This study investigates the stock pricing of financially constrained (FC) firms in Pakistan for the period of 20 years (2000 to 2019). The researcher uses accounting information (financial ratios of the firms) to categorize Pakistani firms as the most and least financially constrained firms. Further, it examines how the Asset Pricing models perform with the risk-adjusted portfolio of the stock returns sorted based on financial constraints.
Methodology: Using the financial constraint proxies/ leverage ratios (Total Debt to Market Value(TDMV), Total Debt to Common Equity (TDC), Interest Coverage Ratio (ICR) and the asset pricing models of Sharpe (1964), Lintner (1965), and the three-factor and the five-factor model of Fama and French (1993, 1996), the returns of all the non-financial firms listed in PSX were sorted as the most and the least financially constraint firms and then their risk-adjusted portfolios were analyzed through Excel, Eviews and STATA.
Main Findings: Positive results (e.g. higher returns) are observed when the capital structure of the FC firms is heavy with debt as compared to unconstrained firms on Pakistan Stock Exchange (PSX). The time series outcome showed that risk-adjusted returns of most FC firms give an extra premium to investors in the PSX when the leverage ratios are used as proxies of financial constraints.
Applications of the study: This study can be used to make an augmented model of asset pricing specifically for emerging and frontier markets by taking the FC factor as one of the main contributing risk factors to predict returns in the equity market.
Novelty/Originality of the study: The devised methodology also results in a more refined and accurate quality of analyses and findings and more comprehensive and sound knowledge of asset pricing as compare to previously conducted studies in PSX.
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Subedi, Kapil Dev. "Testing Financial Constraint Hypothesis of Investment in NEPSE Listed Companies." Saptagandaki Journal 14, no. 01 (December 31, 2023): 1–25. http://dx.doi.org/10.3126/sj.v14i01.64312.
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This study aims to test financing constraints of Nepalese firms and its impact on investment behavior by controlling the accelerator effect. It divides the firms into Financially Constrained (FC) and Unconstrained (UC) group using discriminant analysis and uses Econometric Model to analyze investment cashflow sensitivities (ICFS) of firms. The data comprised the accounting observations (n=256) obtained from the annual reports of 16 non-financial companies listed in Nepal Stock Exchange Ltd. Results show that financially constrained firm exhibit higher cashflow sensitivity indicating significant influence of financing constraints on Nepalese firm's investment behavior. It documents the evidence of financial market inefficiency, urging for policy prescriptions to address these constraints and spur investment and growth.
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Whited, Toni M., and Guojun Wu. "Financial Constraints Risk." Review of Financial Studies 19, no. 2 (2006): 531–59. http://dx.doi.org/10.1093/rfs/hhj012.
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Koráb, Petr, and Jitka Poměnková. "Access to Credit of SMEs in the Czech Republic During the Financial Crisis and in the Post-crisis Period." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 63, no. 4 (2015): 1297–302. http://dx.doi.org/10.11118/actaun201563041297.
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We investigate the impact of the financial crisis on the access of small and medium-sized enterprises in the Czech Republic to external financing. We apply the non-parametric kernel density estimation on a firm-level measure of financing constraints and evaluate its distribution on a balanced panel of SMEs. We focus on financing constraints related to financial health of companies since they determine the commercial banks’ lending behaviour. Our results reveal that firms were more constrained during the crisis and their financing constraints did not largely improve after the end of financial crisis. We argue that enterprises were financially constrained during the crisis because of reduced cash-flow and cash holdings.
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Hu, Guohui, and Sisi Wang. "Digital financial inclusion, Financial Mismatch and Small and medium-sized enterprises Financing Constraints." SHS Web of Conferences 169 (2023): 01011. http://dx.doi.org/10.1051/shsconf/202316901011.
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Digital financial inclusion through the use of big data, artificial intelligence and other emerging technologies is becoming increasingly sophisticated in China. Using a sample of 843 SMEs in Shenzhen Stock Exchange from 2012-2021, this paper investigates the impact of digital financial inclusion on SMEs’ financing constraints and its mechanism of action using a fixed effects model. It is found that digital financial inclusion can significantly alleviate the financing constraints of SMEs. Further analysis of the mechanism of action reveals that digital financial inclusion can indeed reduce the level of financing constraints by alleviating the financial mismatch of enterprises. The heterogeneity analysis finds that this mitigating effect is greater among non-state versus eastern SMEs. This study sheds new light on alleviating the financing constraints of SMEs and improving financial mismatch.
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Angelini, Paolo, and Andrea Generale. "On the Evolution of Firm Size Distributions." American Economic Review 98, no. 1 (February 1, 2008): 426–38. http://dx.doi.org/10.1257/aer.98.1.426.
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We study the impact of financial constraints on firm size distribution (FSD). We find that financially constrained firms, identified using various proxies, are smaller than the others (their FSD is more skewed to the right). Among OECD countries, however, the FSD of nonconstrained firms virtually overlaps that of the entire sample, suggesting that the overall impact of financial constraints on the FSD is modest. The difference is more pronounced in our sample of firms from non-OECD countries. We conclude that financial constraints cannot be considered the main determinant of the FSD evolution in developed economies. (JEL L11, L25)
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Arie, Ridhollah Muhammad. "Financial Constraints, Tax Burdens, and Firm Growth: Evidence from Indonesia." JURNAL DINAMIKA EKONOMI PEMBANGUNAN 4, no. 3 (March 29, 2022): 211–31. http://dx.doi.org/10.14710/jdep.4.3.211-231.
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Using a subjective measure of the constraints and data from World Bank Enterprise Survey, this paper investigates whether two business constraints, financial constraints and tax burdens, have the same impact on Indonesian firm growth. This paper employs instrumental variable estimation to handle endogeneity problems and finds that among the two business constraints examined in the analyses, only the financial constraint is a binding constraint that has a significantly negative impact on Indonesian firm growth, while taxes have a positive and significant impact on firm growth. Based on size classification, a significant impact is only found on large firms. Financial constraints and tax burdens are likely not to be binding constraints to firm growth for small firms, and the benefits from taxes are also not found on these firms. Further investigation of financial constraints reveals that private firms, manufacturing firms, and young firms are more sensitive to the negative impact of financial constraints.
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Laghari, Fahmida, Ye Chengang, Ye Chenyun, Yiding Liu, and Li Xiang. "Corporate Liquidity Management in Emerging Economies under the Financial Constraints: Evidence from China." Discrete Dynamics in Nature and Society 2022 (June 18, 2022): 1–17. http://dx.doi.org/10.1155/2022/6086191.
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The main purpose of this article is to investigate the impact of the optimum level of cash holdings on corporate performance. Moreover, in this paper, the impact of financial constraints is tested as moderating factor between the relationship of cash holdings and corporate performance. The present study uses the system generalized method of moments (GMM) as the main estimation methodology. Using a sample of companies listed on stock exchanges of China, empirical pieces of evidence find that cash holdings-corporate performance relation is a nonlinear concave and depicts similar evidence for firms with financial constraints. The financially constrained firms maintain optimal cash holding at a higher level, which corresponds to debt rationing, difficulty to access financial markets, and the high cost of external finance. Moreover, propensity-score-matching depicts statistically significant differences in the level of cash holdings amid financially constrained and unconstrained firms. Finally, the difference-in-difference estimator shows that financial crisis affects less financially constrained firms due to low reliance on external financing.
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Mishra, Sagarika, and Mike T. Ewing. "Financial constraints and marketing investment: evidence from text analysis." European Journal of Marketing 54, no. 3 (February 27, 2020): 525–45. http://dx.doi.org/10.1108/ejm-01-2019-0090.
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Purpose The purpose of this study to examine the effect of financial constraint on intangible investment because intangible investment provides an overall picture of marketing investment and activity. Intangible investment also plays a significant role in facilitating future sales. Using a new measure of intangible investment (Peters and Taylor, 2017), the authors first establish that intangible investment is positively related with future sales. Then, using a new text-based measure of financial constraint, the authors show that financial constraint has a significant negative effect on future intangible investments after controlling for other factors. Intangible investment has three components. The first is R&D, the second is 30 per cent of selling and general administrative expense (SGA) and the third is other intangibles. The authors find that the negative and significant effect of financial constraint on 30 per cent SGA is stronger. This indicates that financially constrained firms reduce marketing related investments. The authors then considered firm size and found that smaller firms facing financial constraint continue to increase their intangible investments, whereas larger firms reduce their intangible investment. As a robustness test, the authors use advertising expenditure as a measure of promotion related investment and find that financial constraint has a negative effect on advertising spending. The authors then use two traditional measures of financial constraint in their analysis to compare with the new text-based measure. Design/methodology/approach The authors use ordinary least squares with cluster robust standard error to conduct their empirical analysis. Findings First the authors establish that intangible investment positively affects future sales. Further the authors find that financial constraint negatively affects intangible investment. Moreover, financial constraint negatively affects the brand capital of intangible investment. Research limitations/implications The authors did not conduct any industry specific analysis to see how financial constraints affect intangible investment across different industries. Industry specific analysis is important because in some industries/sectors intangibles are clearly more important than in others, so this is an important avenue for future research. It will also be interesting to explore if and how financial constraint has a mediating effect on sales growth via intangible investment and different components of intangibles. Practical implications This study identifies another important factor that can negatively affect brand capital investment. Originality/value The authors have used a measure of financial constraint and text mined all the annual reports of US firms for the period of 1994-2016 to compute this measure.
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Saeed, Abubakr, and Muhammad Sameer. "Financial constraints, bank concentration and SMEs: evidence from Pakistan." Studies in Economics and Finance 32, no. 4 (October 5, 2015): 503–24. http://dx.doi.org/10.1108/sef-02-2014-0046.
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Purpose – This paper aims to empirically investigate the impact of bank market concentration of financial constraints on firm investment. Design/methodology/approach – This analysis is based on cross-industries panel of 368 listed Pakistani non-financial firms over the period of 2001-2009. Further, the Generalized Method of Moments estimation technique has been used to estimate the dynamic panel data model. Findings – By applying a dynamic panel analysis, it was found that small- and medium-sized enterprises (SMEs) are financially constrained in the credit market. The main finding indicates that reduction in bank concentration eases financing constraints, and this effect is more pronounced for SMEs. In addition, while testing the firm opacity in this context, results reveal that opaque firms are more financially constrained, and bank market competition is less favourable to the firms with greater opacity. Originality/value – The results, first, assess the efficacy of ongoing financial reforms in Pakistan and, second, offer implications for other economies that exhibit financial development similar to that of Pakistan.
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Tsebro, Pavlo. "Employee Stock Options: Financing Constraints Explanation." Journal of Finance Issues 15, no. 2 (December 31, 2016): 1–13. http://dx.doi.org/10.58886/jfi.v15i2.2487.
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Prior literature suggests three explanations for granting stock options as a form of compensation to non-executive employees. Broad-based option grants can be used as an incentives tool, a sorting mechanism, and a means of assisting with employee retention. An alternative explanation is that financially constrained firms use broad-based option grants as a form of self-financing. Using empirical data on broad-based option grants, a financial constraints index and individual variable proxies for financial constraints, we examine the relationship between option grants and the severity of financial constraints to which the firm is subject. We find that direct financial benefits to the firm from the use of option grants are possible. However, sorting is more likely reason for using broad-based option grants, while self-financing is a positive side effect of sorting.
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Mun, Sung Gyun, and SooCheong (Shawn) Jang. "Indicating restaurant firms’ financial constraints: a new composite index." International Journal of Contemporary Hospitality Management 31, no. 4 (April 8, 2019): 2014–31. http://dx.doi.org/10.1108/ijchm-06-2018-0466.
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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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Aslam, Saba, and Muhammad Sohail. "The Role of Financial Constraints in Business Environment; Evidence from Business Group Affiliated and Non-Affiliated Firms in Pakistan." Jinnah Business Review 9, no. 2 (July 1, 2021): 34–60. http://dx.doi.org/10.53369/bdvy5725.
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The main purpose of this study is to investigate the relationship between Cash Flows, Growth Opportunities, Firm Size, Firm Age, Firm Performance, Investment, Financial constraints and Leverage between the B.G AFs and NAFs of Pakistan. Current study consists of the balanced panel data containing 86 B.G AFs vs. 90 NAFs of the Pakistan. This study covers the yearly data period from 2007 to 2017. The findings showed that the cash flows are positively correlated with the return on assets, investments, financial constraints, while leverage is negatively correlated with the financial constraints. The positive correlation between cash flows and return on asset is higher for the B.G AFs, which means the B.G AFs are more profitable than the NAFs. The correlation of cash flows with the investment and financial constraints is positive but lower for the B.G AFs, showing that AFs investment is less sensitive and less financially constrained than NAFs. The inverse correlation between leverage and financial constraints shows that the B.G AFs have easy access to the financial sources. The positive and higher correlation of growth opportunities with cash flows and return on assets shows that the AFs growth is higher than NAFs.
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Khudko, E. V., and E. V. Dondopova. "Determinants of investment activity of Russian companies in the real sector under financial constraints." Vestnik Universiteta, no. 1 (March 19, 2024): 140–51. http://dx.doi.org/10.26425/1816-4277-2024-1-140-151.
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The level of accessibility to various sources of financing plays a crucial rolein formation of an investment strategy. The purpose of the article is to identify and analyse factors influencing the volume of investment expenditures of public Russian enterprises in the real economic sector with consideration to the degree of financial constraints. The research is based on division of companies into more and less financially constrained. The following characteristics were chosen as criteria for segmentation: size, age of the business and placement of corporate bonds on the exchange. A regression analysis specified similarities and differences among determinants of investment activity of more and less financially constrained companies. The key common factor that has an impact on this characteristic of organisations in both groups is investment expenditures of the previous period. Investments of more financially constrained companies have shown a strong dependence on indicators of current cash flow and capital structure. At the same time, the volume of expenses of less financially constrained companies is more influenced by the indicator of accumulated tangible assets. The results of the research may interest enterprises in the real sector when assessing the degree of their financial constraint and determining the volume of investment expenditures.
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Ahn, Ji-Young. "Working hours reduction, financial constraints, and employment: evidence from Korean firms." Problems and Perspectives in Management 16, no. 4 (October 24, 2018): 75–82. http://dx.doi.org/10.21511/ppm.16(4).2018.07.
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This study analyzes the effect of reducing working time to a 40-hour week standard on employment, using the data of 1,961 publicly traded firms in Korea. The objective of the study is to empirically estimate the economy-wide effect of this working hours reduction on employment in Korea. This paper also attempts to uncover the effect of financial constraints, defined as the degree of accessibility to finance, on employment stability or sustainability. Some economic theories suggest that financial constraints have mixed or conflicting effects on employment. Building on labor and finance literature such as Garmaise (2007), easing financial constraints helps firms to optimally substitute capital for labor, thereby decreasing employment. Likewise, financially constrained firms are limited by the availability of internal funds, and a decrease in the external financing cost will increase firm-level human resource investment, such as employment. Using a longitudinal data on publicly listed companies in Korea, the author examines variations in the timing of implementing the working hours reduction in terms of establishment size to see if the effect of working hours reduction on employment differs with the degree of financial constraints of firms. This paper finds that the economy-wide effect on employment of work-hours reduction is positive, approximately 3.5% increase in employment. The results, however, show that there is no effect of the working hours reduction on employment in less financially constrained firms or larger corporations, whereas a substantial positive effect on employment is in smaller firms or financially constrained firms, supporting the Garmaise’s prediction.
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Edwards, Alexander, Casey Schwab, and Terry Shevlin. "Financial Constraints and Cash Tax Savings." Accounting Review 91, no. 3 (September 1, 2015): 859–81. http://dx.doi.org/10.2308/accr-51282.
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ABSTRACT We investigate the association between financial constraints and cash savings generated through tax planning. We predict that an increase in financial constraints leads firms to increase internally generated funds via tax planning. We measure financial constraints based on changes in firm-specific and macroeconomic measures. We find that firms facing increases in financial constraints exhibit increases in cash tax planning. Our results indicate that among profitable firms, firm-years with the largest increases in firm-specific constraints are associated with declines in firms' cash effective tax rates ranging from 3.00 to 5.14 percent, which equate to between 2.87 and 4.82 percent of operating cash flows. We also find that (1) the impact of financial constraints on tax planning is greatest among firms with low cash reserves, and (2) constrained firms achieve a substantial portion of their current tax savings via deferral-based tax planning strategies, despite the lack of a financial statement benefit. JEL Classifications: E69; H25; H60. Data Availability: Data used in this study are available from public sources identified in the paper.
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Khanal, Aditya R., and Madhav Regmi. "Financial constraints and production efficiency." Agricultural Finance Review 78, no. 1 (February 5, 2018): 25–40. http://dx.doi.org/10.1108/afr-07-2016-0068.
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Purpose The purpose of this paper is to study the production and efficiency of rice growers in drought prone areas with special attention given to economic and financial factors. Design/methodology/approach The authors use a parametric stochastic frontier approach and a non-parametric data envelopment analysis. Findings The study found that financial and liquidity constraints negatively influence production efficiency while off-farm work positively influences efficiency in drought prone areas. Originality/value Many biotic and abiotic factors affect the production efficiency of rice growers. Among abiotic stress, drought is the strongest constraint affecting nearly one third of the total rice area in Asia and causing significant economic losses. Farmers’ economic conditions and financial constraints further exacerbate the situation. However, very few studies have analyzed the efficiency in drought prone areas and the influence of economic and financial factors. This study contributes to in this regard by augmenting economic and financial factors in the efficiency estimation of drought prone areas using parametric and non-parametric approach.
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Gautier, Axel. "Regulation under Financial Constraints." Annals of Public and Cooperative Economics 75, no. 4 (December 2004): 645–56. http://dx.doi.org/10.1111/j.1467-8292.2004.00266.x.
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Ueda, Kenichi, Akira Ishide, and Yasuo Goto. "Listing and financial constraints." Japan and the World Economy 49 (March 2019): 1–16. http://dx.doi.org/10.1016/j.japwor.2018.05.001.
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Hu, Xinyi. "ESG and Financial Constraints." SHS Web of Conferences 169 (2023): 01071. http://dx.doi.org/10.1051/shsconf/202316901071.
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Prior evidence that firm’s environment, society and governance (ESG) performance has a positive impact on its investment behavior, leaves unaddressed whether it has the same impact on corporate financing constraints. Drawing on stakeholder theory and Information asymmetry theory, this study analyzes the issue in a more exhaustive way. Use Chinese A-share listed companies samples from 2009 to 2020, the author analyzes the relationship between ESG performance and financing constraints, and finds that firms with better ESG performance, measured by high ESG ratings, face less financing constraints. This study helps to clarify the economic significance of ESG performance, provides empirical basis for listed companies to attach importance to and improve ESG performance, and has implications for government departments to formulate relevant policies to improve the efficiency of capital allocation and promote high-quality economic development.
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Chang, Xin, Yunling Chen, and Sudipto Dasgupta. "Macroeconomic conditions, financial constraints, and firms’ financing decisions." Journal of Banking & Finance 101 (April 2019): 242–55. http://dx.doi.org/10.1016/j.jbankfin.2018.10.016.
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Hoberg, Kai, Margarita Protopappa-Sieke, and Sebastian Steinker. "How do financial constraints and financing costs affect inventories? An empirical supply chain perspective." International Journal of Physical Distribution & Logistics Management 47, no. 6 (July 3, 2017): 516–35. http://dx.doi.org/10.1108/ijpdlm-05-2016-0142.
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Purpose The purpose of this paper is to identify the interplay between a firm’s financial situation and its inventory ownership in a single-firm and a two-firm perspective. Design/methodology/approach The analysis uses different secondary data sources to quantify the effect of both financial constraints and cost of capital on inventory holdings of public US firms. The authors first adopt a single-firm perspective and analyze whether financial constraints and cost of capital do generally affect the amount of inventory held. Next, the authors adopt a two-firm perspective and analyze the inventory ownership in customer-supplier relationships. Findings Inventory levels are affected by financial constraints and cost of capital. Results indicate that higher costs of capital are weakly associated with lower inventories. However, contrary to the authors’ expectations, firms that are less financially constrained hold less inventories than firms that are more financially constrained. Finally, the authors find that customers hold the larger fraction of supply chain inventory in supplier-customer dyads. Practical implications The authors’ results indicate that financial considerations generally play a role in inventory management. However, inventory holdings seem to be influenced only slightly by financing costs and inventory holdings between supplier and customer seem to be less than optimal from a financial perspective. Considering those financial aspects can lead to relevant financial advantages. Originality/value In contrast to other recent research, the authors study how the financial situation of a firm affects its inventory levels (not vice versa) and also consider inventories from a two-firm perspective.
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Flaminiano, John Paul, and Jamil Paolo Francisco. "Firm characteristics and credit constraints among SMEs in the Philippines." Small Business International Review 5, no. 1 (May 31, 2021): e332. http://dx.doi.org/10.26784/sbir.v5i1.332.
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Access to finance is critical to support the growth of small and medium-sized enterprises (SMEs). However, lack of access to adequate financing is one of the biggest obstacles that SMEs face. This paper analyzed the relationship between firm characteristics and credit constraints among SMEs in the Philippines. We determined which firm characteristics are correlated to the predicted probability of being credit-constrained or “quasi-constrained” — i.e., able to borrow from informal sources. Estimates of marginal effects at the means (MEMs) from logistic regressions provide some suggestive evidence that increased firm size, previous purchase of fixed assets, and increased use of digital technologies for accounting and financial management are associated with a lower predicted probability of being credit-constrained. The use of digital technologies in accounting and financial management is also associated with a lower probability of credit constraint in informal financial markets.
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Hoang, Huan Cong, Qin Xiao, and Saeed Akbar. "Trade credit, firm profitability, and financial constraints." International Journal of Managerial Finance 15, no. 5 (April 17, 2019): 744–70. http://dx.doi.org/10.1108/ijmf-09-2018-0258.
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Purpose The purpose of this paper is to investigate the non-linear association between trade credit and profitability of small and medium-sized enterprises (SMEs). Moreover, this paper analyses whether the above relationship varies according to financial constraints of SMEs. Design/methodology/approach The authors use panel data methodology to conduct investigations for a sample of 1,509 non-financial listed SMEs from nine countries or territories located in the East Asia and Pacific region, namely, China, Vietnam, Malaysia, Thailand, Japan, South Korea, Taiwan, Singapore and Hong Kong, over the period from 2010 to 2016. Findings This study indicates that trade credit receivable (TCR) and trade credit payable (TCP) have an inverted U-shaped relationship with SMEs’ profitability, which implies the existence of an optimal trade credit level that balances between costs and benefits to maximize their profitability. This result suggests that managers should try to keep the level of trade credit investment as close to the optimal point as possible to avoid the case that their profitability reduces when they move away from this point. Moreover, this study also finds that the optimal trade credit level is sensitive to the financial constraints of SMEs. In particular, optimal level of more financially constrained firms is lower than that of less financially constrained firms. Originality/value A number of contributions that this study makes to the existing literature are presented as follows. First, the paper takes account of the possible presence of a concave relationship between trade credit and SMEs’ profitability, largely ignored by the existing empirical literature. Second, it demonstrates this association in terms of both aspects of trade credit, including TCR and TCP. Third, the study investigates the effect of the different level of financial constraints faced by SMEs on the relationship between trade credit and their profitability.
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Gharaibeh, Mohammad, Ziad Mohammad Zurigat, and Ra’d Ananbeh. "The impact of financial constraints on inventory investment: Empirical evidence from Jordan." Risk Governance and Control: Financial Markets and Institutions 6, no. 4 (2016): 494–502. http://dx.doi.org/10.22495/rgcv6i4siart7.
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This study aims at investigating whether Jordanian industrial firms have a target inventory level, and how fast they move toward it when any deviation exists. In addition, it investigates whether the financial constraints have an impact on inventory investment related to the target level, and the speed of adjustment. Using the panel data for a sample of 50 industrial firms listed on the Amman Stock Exchange (ASE) over the period (2001-2014). The empirical results suggest that Jordanian industrial firms have a target inventory level. However, Jordanian industrial firms adjust their actual inventory holding to their target level slower than their counterparts in developed and developing countries. Moreover, the results show that the financial constraint do affect inversely the adjustment speed, and makes the financially constrained firms reduce their level of inventory beyond the target level by more than others.
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Laghari, Fahmida, and Ye Chengang. "Investment in working capital and financial constraints." International Journal of Managerial Finance 15, no. 2 (April 1, 2019): 164–90. http://dx.doi.org/10.1108/ijmf-10-2017-0236.
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Purpose The purpose of this paper is to investigate the relationship between working capital management and corporate performance with financial constraints. Design/methodology/approach This study uses large panel sample of Chinese listed firms over the period 2005–2015 using system generalized method of moments (GMM) estimator that controls unobserved heterogeneity of individual firms well and GMM methodology is robust to address endogeneity issues. Findings Empirical evidence finds inverted U-shaped relationship between working capital and corporate performance and exhibits similar evidence for financially constrained firms. Evidence shows impact of high sales and discounts on early payments at low level of working capital and dominance of opportunity cost and cost of external finance at high level of working capital. The findings of the results show that optimal working capital level of financially constrained firms is relatively lower due to high cost of external capital and debt rationing. The results also indicate that on average NET is significantly lower for firms with Tobin’s Q>1 than firms with Tobin’s Q=1, and suggest that aggressive working capital management is significantly and positively associated with higher corporate values. Originality/value This paper is among few that complement the existing literature by providing evidence that inverted U-shaped relationship between working capital management and corporate performance also exists in the context of Chinese listed non-financial firms. Exclusively, the relationship of working capital and corporate performance with linkage of financial constraints is scant in the context of Chinese listed non-financial firms.
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Bailey, Martha J., Lea Bart, Alexa Prettyman, Vanessa Wanner Lang, and Vanessa Dalton. "Who Is Financially Constrained in Their Choice of Contraceptive Method? Lessons from M-CARES." AEA Papers and Proceedings 114 (May 1, 2024): 442–48. http://dx.doi.org/10.1257/pandp.20241108.
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The Michigan Contraceptive Access, Research, and Evaluation Study (M-CARES) is a randomized control trial that examines how financial constraints affect the choice of contraceptives among uninsured individuals. Although all M-CARES participants are highly financially constrained, these constraints are more binding in some subgroups. Black women, women with less than a high school degree, and women with incomes above 250 percent of the federal poverty line are less financially constrained, whereas married women and those with three or more children are more financially constrained. A mediation analysis shows that attitudes and beliefs about contraception do not explain this heterogeneity across groups.
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Ozili, Peterson K. "Financial Inclusion-Exclusion Paradox: How Banked Adults become Unbanked Again." Financial Internet Quarterly 17, no. 2 (June 1, 2021): 44–50. http://dx.doi.org/10.2478/fiqf-2021-0012.
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Abstract This paper analyses how financially included adults might become unbanked again. Agents of financial inclusion incorporate economic and social constraints in the delivery of formal financial services. These constraints limit the ability of poor banked adults to use basic financial services to the fullest. The constraints affect agents of financial inclusion positively and affect customers negatively up to a point where the marginal benefit of being financially included is negative for poor customers. When the marginal benefit of using formal financial services becomes negative, the affected banked adults may discontinue using their formal accounts or exit the formal financial sector when they can no longer bear the negative effect of social and economic constraints that hinder their ability to enjoy basic financial services to the fullest.
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Zhao, J., J. Zhang, and P. J. Barry. "Do formal credit constraints affect the rural household consumption in China?" Agricultural Economics (Zemědělská ekonomika) 60, No. 10 (October 21, 2014): 458–68. http://dx.doi.org/10.17221/161/2013-agricecon.
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The article investigates the consequences of credit constraints on rural household consumption in China. Based on a unique rural finance and consumption survey, the authors first identify the credit constraint status of rural households from formal financial institutions. Then, they apply an endogenous switching regression model to compare the consumption responses to household production inputs for credit constrained and non-constrained households. The estimation results reveal that the credit constraint could result in the crowding out effect of the aggregate household consumption from its production inputs. Nonetheless, similar to the non-constrained households, the credit constraint households are capable of smoothing their necessary consumption.
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Alexandris, Konstantinos, Vasilis Barkoukis, Haralambos Tsorbatzoudis, and George Grouios. "A Study of Perceived Constraints on a Community-Based Physical Activity Program for the Elderly in Greece." Journal of Aging and Physical Activity 11, no. 3 (July 2003): 305–18. http://dx.doi.org/10.1123/japa.11.3.305.
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The purpose of the study was to examine whether older adults (>60 years old) who participated in physical activity programs provided by a senior center in Greece perceived certain constraints as limiting reasons for their participation and whether perceived constraints could predict individuals’ intentions to continue participation. The sample of the study consisted of 125 adults age 60 and older. The principal-component analysis of the leisure-constraint scale revealed 4 constraint dimensions: facilities/services, individual/psychological, lack of partners, and accessibility/financial. The results revealed significant differences in the perception of constraints between frequent and infrequent participants in the individual/psychological and accessibility/financial constraints. The constraint dimensions were also shown to predict a significant and fairly high (40%) proportion of the variance in older adults’ intention to continue participation. The individual/psychological and accessibility/financial constraint dimensions were shown to be the major predictors. The implications of these results for promoting physical activity programs among older adults are discussed.
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Gomes, Nelson, and Nuno Gonçalves. "Innovation and the Financial Performance of Firms during the Great Recession and Recovery Period." Notas Económicas, no. 55 (December 7, 2022): 113–28. http://dx.doi.org/10.14195/2183-203x_55_5.
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This study analyzes the relationship between innovation and financial constraints. To this end, a database extracted from the Community Innovation Survey (CIS) and the System of Business Accounts (SCIE) was used. The sample consisted of 24,679 active companies operating in Portugal in the manufacturing and service industry between 2008 and 2016. A Recursive Bivariate Probit Model (RPBM) was used for making estimates. When analyzing the relationship between innovation and financial constraints, the results reveal a negative relationship between the two, confirming that firms that are financially constrained are more limited in their investments in R&D, and innovation is less accessible to them. The severity of the effects of financial constraints is heterogeneous across economic activities, strongly affecting innovative industries, while service industries appear to be the least affected. It was also observed that larger companies are better able to innovate. There was a positive relationship between innovation and the variables sales and exports, indicating that innovation will positively affect the financial results of companies.
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AZAM, Muhammad, and Syed Anum SHAH. "INTERNAL FINANCIAL CONSTRAINTS, EXTERNAL FINANCIAL CONSTRAINTS AND INVESTMENT CHOICE: EVIDENCE FROM PAKISTANI FIRMS." Australian Journal of Business and Management Research 01, no. 08 (March 17, 2012): 18–22. http://dx.doi.org/10.52283/nswrca.ajbmr.20110108a02.
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The purpose of this study is to analyze the impact of internal and external financial constraints on investment choice. The data have been taken from 9 major sectors (52 listed firms in the Karachi Stock Exchange) namely; Pharmaceutical & Bio Technology, Textile, Sugar, Tobacco, Chemicals, Oil and Gas, Fixed line Telecommunication, Industrial metal and Mining, and Cement sectors for the time period 2004 to 2010 on annual basis. Multiple regression analysis has been done to examine the relationship among firm’s size, dividend payout ratio, firm’s age, and investment. The empirical findings show that there is positive relationship between the firms’ size and investment while a negative relationship exists between firms’ age and investment. It also reports that there is negative relationship between dividend payout ratio and the investment. This shows that if a firm grows old or high dividend payout ratio then it will tend to spend less for expansion as compared to the young firms.
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Guerdjikova, Ani, and John Quiggin. "Market Selection With Differential Financial Constraints." Econometrica 87, no. 5 (2019): 1693–762. http://dx.doi.org/10.3982/ecta15328.
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We analyze financial markets in which agents face differential constraints on the set of assets in which they can trade. In particular, the assets available to each agent span a partition of the state space that can be strictly coarser than the partition spanned by the assets available in the market. We first show that the existence of differential constraints has an impact on prices and allocations as compared to a complete financial market with unconstrained agents. We consider the implications for survival, taking the work of Blume and Easley (2006) as a starting point. We show that whenever agents have identical correct beliefs and equal discount factors, and their partitions are nested, all agents survive. When agents have heterogeneous beliefs, differential constraints may allow agents with wrong beliefs to survive. Provided constraints are relevant (in a sense we define more precisely), the condition for an agent to survive is that his survival index is at least as large as that of the agents with finer partitions. We also study the impact of deregulation (an increase in the set of assets available to some agents). Unless the agent can adopt beliefs that are closer to the truth on the newly refined partition than those of less constrained agents, increasing his opportunities for trade might harm his chances for survival.
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Dogru, Tarik. "Corporate Investment and Hotel Firm Value: Does Corporate Governance Matter in Financially Constrained Firms?" Cornell Hospitality Quarterly 59, no. 4 (October 15, 2018): 339–51. http://dx.doi.org/10.1177/1938965517748772.
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Corporate investments are expected to create value for firms. Although some studies report evidence supporting such expectations, many studies document contradictory findings. However, it is not clear why corporate investments create value in some firms but reduce value in others. The purpose of this study is to examine the extent to which the quality of corporate governance and the degrees of financial constraints affect the relationship between corporate investments and hotel firm value in a unified model where both weak corporate governance and financial constraint problems are concurrently observed. Shareholders of poorly governed firms place a lower value on corporate investments compared with those of well-governed firms, whereas shareholders of financially constrained firms perceive corporate investments to be of greater value compared with those of unconstrained firms. The results further showed that CEOs of financially constrained firms make value-increasing investments despite poor corporate governance mechanisms. Theoretical and practical implications are discussed within the realm of corporate finance theories.
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Kirui, Benard Kipyegon, and Seth Omondi Gor. "Financial Constraints and Firm Capital Structure in Kenya." International Journal of Economics and Finance 10, no. 1 (December 15, 2017): 177. http://dx.doi.org/10.5539/ijef.v10n1p177.
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Empirical evidence suggests that capital structure varies across firms facing different levels of information asymmetry, however, this evidence contradict the prediction of pecking order hypothesis. Although debt capacity constraints offer some explanation for this discrepancy, it fails to explain the behavior of small high growth firms who do not issue debt even with no debt capacity constraints. Against this backdrop, this study investigated the effects of financial constraints on firm capital structure in Kenya. This was implemented by interacting a financial constraints dummy with the right-hand side variables of pecking order test equation to allow for any variation of capital structure across financial constraints regimes. The results show that constrained firms use less internal funds and have less cash than unconstrained firms. Pecking order theory was not supported. However, allowing financial constraints regimes in pecking order equation improved the fit of the model and produced results that are consistent with pecking order prediction. Financing behavior varies with financial constraints status. The wider the wedge between the cost of debt and the opportunity cost of internal funds, the higher the value transferred to debt-holders and the lower the debt utilization. To improve firm access to capital, policies should be geared towards reducing the wedge between the cost of external and internal funds.