Investment-Cash Flow Sensitivities or Cash-Cash Flow Sensitivities? An Evaluative Framework for Measures of Financial Constraints
AbstractWe evaluate two models commonly used for measuring financial constraints in their ability to discriminate between constrained and unconstrained firms. We compute firm-specific estimates for the "cash flow sensitivity of investment" (CFSI), and the "cash flow sensitivity of cash" (CFSC) and provide a framework that summarizes the performance of each model into a single numerical metric. We argue that this 'ex-post' approach provides interesting advantages over the traditional operationalization, in which firms are classified 'ex-ante' on a theoretical basis. Our findings suggest the superiority of the CFSI model over the CFSC model for a sample of manufacturing SMEs in Belgium. Copyright (c) 2008 The Authors Journal compilation (c) 2008 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.
Volume (Year): 35 (2008-09)
Issue (Month): 7-8 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X
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- Filipe Silva & Carlos Carreira, 2012.
"Measuring Firms' Financial Constraints: A Rough Guide,"
GEMF Working Papers
2012-14, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Filipe Silva & Carlos Carreira, 2012. "Measuring Firms' Financial Constraints: A Rough Guide," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 36, pages 23-46, December.
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