Work

Corporate efficiency, credit status and investment

Year: 2017

Type: article

Abstract: This paper considers the relationship between financial frictions and investment. In an effort to clarify the role of cash flow in examining the impact of capital market imperfections, endogenous switching regression models are estimated for a panel of 1122 UK firms listed on the London Stock Exchange over the period of 1981–2009. Not only is the financial regime which the firm faces endogenous, we also allow the regime to change over time via modeling efficiency using stochastic frontier analysis. The results reveal that a firm's constrained credit status changes with the improvement of its efficiency. Furthermore, the analysis reveals that financially constrained firm's investment is comparatively more sensitive to its cash flow. Moreover, this sensitivity is statistically significant and is negatively related with corporate efficiency.

Source: European Journal of Finance

DOI: 10.1080/1351847x.2017.1312475

Authors: Manzur Quader, Karl Taylor

Institutions: Chittagong Independent University, IZA - Institute of Labor Economics, University of Sheffield

Language: English

Topic: Corporate Finance and Governance

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W147115200

FWCI: 1.895

Cites: 101

Cited by: 15

Related to: 10