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We examine the impact of the adoption of International Financial Reporting Standards (IFRS) on firm value using a sample of African listed firms selected over the 2000-2015 period. Our results show that the adoption of IFRS positively impacts firm value. We further find that the impact of IFRS adoption on firm value is more pronounced in environments where there is a greater commitment to the rule of law. Moreover, the increase in firm value is more pronounced for firms with a higher degree of financial constraints. Finally, additional results suggest that the benefits of fully implementing IFRS are higher than those arising from partial/modified adoption. Our results are robust to controlling for other factors that affect firm value and to alternative sampling procedures.

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Purpose The purpose of this paper is to examine how managers of African firms, operating in environments characterised by less developed capital markets and weak institutional structures, make use of their internally generated cash flows. Design/methodology/approach The authors use a panel data methodology which regresses a particular use of cash flow (e.g. capital expenditure) on the internally generated operating cash flow of a firm and a set of control variables. The estimation of the regression model is done by ordinary least squares regressions. For robustness, the authors also estimate the models using system generalised method of moments to control for endogeneity and measurement error problems. Findings The authors find that managers of African firms hold most of their internally generated cash flows, and when they decide to spend, they allocate a higher proportion towards dividend payments; followed by debt adjustments; then to investments; and lastly, to equity repurchases. Research limitations/implications The findings are consistent with the existence of a significant financial constraint in African markets, and the use of dividends to signal credit quality in relatively underdeveloped capital markets. Originality/value The authors provide a more extensive analysis of how a firm spends a unit of the incremental cash flow it generates. In particular, the analysis shows that beyond investments in capital expenditure, other cash flow uses (i.e. cash holdings, dividend payments, and adjustments in debt and equity capital) which have been largely overlooked in the literature are important to understanding the effects of financial constraints on corporate decisions. Also, the early empirical evidence on the cash flow allocations of African firms could be a step in the right direction in informing theory development in this area.

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Using publicly listed firms in the UK, we examine the time-series variation of investment-cash flow sensitivity after directly controlling for future growth opportunities in cash flow, which if overlooked, as in the literature, could bias inferences. We find that investment-cash flow sensitivity is disappearing over time, even for constrained firms during the global financial crisis when credit constraints were more significant or binding. Our results not only confirm the decline in investment-cash flow sensitivity that is not explained by factors so far identified in the literature but also its diminishing usefulness as a proxy of financial constraints.

The increase in debt‐free or under‐levered firms (financial conservatism) is one of the most recent stylized puzzles that cannot be explained within the context of extant capital structure theories. In this paper, we exploit the 2008–09 contractions in credit supply in a quasi‐natural experiment to examine whether financial conservatism affects firm value. Using a large sample of firms from seven African countries over the period 2003–2012, we find strong evidence that financial conservatism mitigates the adverse effect of contractions in credit supply on firm value for both local and international firms. Our results suggest that financial conservatism is an effective strategy for managing risks arising from contractions in credit supply and international business exposure. These findings provide novel empirical evidence on the value relevance of financial conservatism which shields firms from the adverse and far‐reaching effects of contractions in credit supply.

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