Investment-Cash Flow Sensitivity Around the Crisis: Are African Firms Different?

Machokoto, M., Ibeji, N. and Chipeta, C. (2020) Investment-Cash Flow Sensitivity Around the Crisis: Are African Firms Different? International Journal of Managerial Finance. 1743-9132.

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Machokoto_etal_IJMF_2020_Investment_Cash_Flow_Sensitivity_Around_the_Crisis_Are_African_Firms_Different.docx.pdf - Accepted Version

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Abstract:

Purpose: This paper examines the contentious relationship between investment and cash flow using the 2008—09 credit supply shock as a form of quasi-natural experiment. Methodology: Panel threshold models with unknown sample separation are estimated for a sample of publicly listed firms from nine African countries over the period 2003— 2012. Using this approach reduces subjective or ex-ante sample splitting bias that is not accounted for in the extant literature. Findings: We show that investment-cash flow sensitivity is decreasing even during the Global Financial Crisis, and for firms more likely to be financially constrained. We conclude that the usefulness of investment-cash flow sensitivity as a proxy for financial constraints is diminishing over time, even after directly addressing biases from ex-ante subjective sample splitting and various forms of endogeneity. Originality: We provide new empirical evidence from sharper tests of financial con- straints for understudied African firms, and highlight the need to re-look at the usefulness of investment-cash flow sensitivity as a proxy of financial constraints.

Creators:

Machokoto, M., Ibeji, N. and Chipeta, C.

Faculties, Divisions and Institutes:

Faculties > Faculty of Business & Law > Accounting & Finance

Date:

10 September 2020

Date Type:

Acceptance

Journal or Publication Title:

International Journal of Managerial Finance

Number of Pages:

Language: