Financial constraints and the interdependence of corporate financial decisions

Abstract

Purpose This paper aims to examine the interdependence of financial decisions (investment, financing, dividends and cash-holding) under financial constraints. Design/methodology/approach The authors specify and estimate a system of simultaneous equations with panel data and firm fixed effects by three-stage least squares in a sample of firms from 62 countries from 1996 to 2010. Findings The main findings largely corroborate previous studies regarding the interdependence of financial decisions. The authors also find evidence suggesting that financial constraints have a major impact on firms’ financial decisions. The results also suggest that financial constraints manifest themselves in virtually all firms, indicating that such constraints are a matter of degree and not of kind. Research limitations/implications Implications regarding the impact of cash flows on investment and cash-holding decisions are only partially confirmed. Practical implications The results are consistent with the hypothesis that financial constraints distort the financial policies of firms. For the purpose of formulating policies that reduce these distortions, the authors emphasize the role of the availability of internal funds and the recoverable fraction of assets in easing financial constraints, thus allowing for greater investment on the part of firms. Social implications The results suggest that regulators should promote policies that reduce the dependence of corporate investment on internally generated cash flows. Originality/value Unlike previous studies, the authors account for the direct impact endogenous variables could have on each other. In addition, they explore the impact of each country’s particular legal environment on the pledgeability of assets at the company level.

Financial Behavior of Family Businesses: A Bibliometric and Systematic Literature Review

“…We assert that the financial behavior of family businesses cannot be explored by limiting oneself to one decision to the detriment of others. On the contrary, financial behavior must be approached from a holistic perspective because the three decisions are interdependent and are determined simultaneously (Kirch & Terra, 2019). The traditional disconnect between these financial choices as supported by Modigliani and Miller (1958) is no longer defensible.…”

Kendala Keuangan Dan Saling Ketergantungan Dalam Keputusan Keuangan Pada Sektor Consumer Goods Di Indonesia

“…Artinya, kas berpengaruh positif terhadap arus kas. Hal ini sesuai dengan penelitian sebelumnya (Kirch & Terra, 2019) dimana sesitivitas kas terhadap arus kas adalah signifikan positif dengan signifikansi 1%. Kusnadi & Wei (2011) juga melaporkan hal yang sama yaitu sensivitas arus kas terhadap kas adalah positif untuk grup perusahaan yang terkendala keuangan maupun tidak terkendala keuangan.…”

“…Artinya, hutang berpengaruh positif terhadap arus kas. Hal ini berbeda dengan penelitian sebelumnya (Kirch & Terra, 2019) dimana arus kas mempunyai koefisien negatif yang signifikan pada 1% untuk grup yang terkendala keuangan (financial constraint firm) dan grup yang tidak terkendala keuangan (financial unconstraint firm). Ini disebabkan karena sampel perusahaan yang diambil hanya pada sektor consumer goods.…”