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Are Brazilian Firms Savings Sensitive to Cash Windfalls?

Author

Listed:
  • Cristiano M. Costa

    (Economics Department, University of Pennsylvania)

  • Lourenço Senne Paz

    (Economics Department, University of Pennsylvania)

  • Bruno Funchal

    (FUCAPE Business School)

Abstract

Following Almeida, Campello and Weisbach (2003), we use the link between financial constraints and firm’s demand for liquidity to test the effect of financial constraints on firm policies in Brazil. The effect of financial constraints can be captured by a firm’s propensity to save cash out in addition of cash inflows. While constrained firms should have a positive cash flow sensitivity of cash, unconstrained firms’ cash savings should not be systematically related to cash flows. Using 2SLS method to deal with endogeneity problems, we estimate the cash flow sensitivity of cash using a large sample of Brazilian manufacturing firms over the 1995-2007 period and, using the access to international financial markets trough ADRs as a criterion for financial constraint, we find that firms that are more likely to be financially constrained display a significantly positive cash flow sensitivity of cash, while unconstrained firms do not.

Suggested Citation

  • Cristiano M. Costa & Lourenço Senne Paz & Bruno Funchal, 2008. "Are Brazilian Firms Savings Sensitive to Cash Windfalls?," Brazilian Business Review, Fucape Business School, vol. 5(2), pages 136-142, May.
    • Handle: RePEc:bbz:fcpbbr:v:5:y:2008:i:2:p:136-142
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    Citations

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    Cited by:

    1. Araújo, Bruno César & Paz, Lourenço S., 2014. "The effects of exporting on wages: An evaluation using the 1999 Brazilian exchange rate devaluation," Journal of Development Economics, Elsevier, vol. 111(C), pages 1-16.
    2. Portal, Márcio Telles & Laureano, Luis, 2017. "Does Brazilian allowance for corporate equity reduce the debt bias? Evidences of rebound effect and ownership-induced ACE clientele," Research in International Business and Finance, Elsevier, vol. 42(C), pages 480-495.
    3. Marcio Telles Portal & João Zani & Carlos Eduardo Schönerwald da Silva, 2013. "Is cash negative debt under the perspective of hedging in Brazil?," Brazilian Business Review, Fucape Business School, vol. 10(1), pages 1-26, January.

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