Are Brazilian Firms Savings Sensitive to Cash Windfalls?
AbstractFollowing 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.
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Bibliographic InfoArticle provided by Fucape Business School in its journal Brazilian Business Review.
Volume (Year): 5 (2008)
Issue (Month): 2 (May)
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Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
Phone: +55 27 4009-4423
Fax: +55 27 4009-4422
Web page: http://www.bbronline.com.br/
More information through EDIRC
cash flow sensitivity of cash; financial constraints; cash policy.;
Other versions of this item:
- Cristiano Machado Costa & Lourenço Senne Paz, 2004. "Are Brazilian Firms Savings Sensitive To Cash Windfalls?," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 063, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
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