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Does switching from NASDAQ to the NYSE affect investment-cash flow sensitivity?

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  • Yang, Chau-Chen
  • Baker, H. Kent
  • Chou, Li-Chuan
  • Lu, Bo-Wei
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    Abstract

    We examine whether a firm's sensitivity of investments to cash flow changes when it switches from the NASDAQ to the NYSE over the period 1992-2002. Contrary views exist on the effect of listing switches on investment sensitivity to cash flow. Investment-cash flow sensitivity is a proxy for the degree of uncertainty of using internal funds to finance a firm's investments. We use a least square dummy variable model to analyze panel data before and after switching to determine the impact of switching. Based on pooled data, our evidence is consistent with the view that NASDAQ-to-NYSE switchers have significantly lower investment-cash flow sensitivity, which means that firms rely less heavily on internal financing after switching and find accessing external financing easier. Thus, firms may benefit from switching in terms of a lower cost of external capital due to such factors as increasing visibility, liquidity, and reputation.

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    File URL: http://www.sciencedirect.com/science/article/B6V7S-4SWXDGT-1/2/d86e4a433e1684c96eec8243bace8671
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 62 (2009)
    Issue (Month): 10 (October)
    Pages: 1007-1012

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    Handle: RePEc:eee:jbrese:v:62:y:2009:i:10:p:1007-1012

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    Web page: http://www.elsevier.com/locate/jbusres

    Related research

    Keywords: Cash flow sensitivity Exchange switching;

    References

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    1. Edelman, Richard B & Baker, H Kent, 1990. "Liquidity and Stock Exchange Listing," The Financial Review, Eastern Finance Association, vol. 25(2), pages 231-49, May.
    2. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    3. Nathalie Moyen, 2004. "Investment-Cash Flow Sensitivities: Constrained versus Unconstrained Firms," Journal of Finance, American Finance Association, vol. 59(5), pages 2061-2092, October.
    4. Baker, H. Kent & Nofsinger, John R. & Weaver, Daniel G., 2002. "International Cross-Listing and Visibility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(03), pages 495-521, September.
    5. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-60, September.
    6. H. Kent Baker & Gary E. Powell & Daniel G. Weaver, 1999. "Does NYSE Listing Affect Firm Visibility?," Financial Management, Financial Management Association, vol. 28(2), Summer.
    7. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-58, December.
    8. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, 04.
    9. H. Kent Baker & Richard B. Edelman, 1992. "AMEX-to-NYSE Transfers, Market Microstructure, and Shareholder Wealth," Financial Management, Financial Management Association, vol. 21(4), Winter.
    10. Deshmukh, Sanjay & Vogt, Stephen C., 2005. "Investment, cash flow, and corporate hedging," Journal of Corporate Finance, Elsevier, vol. 11(4), pages 628-644, September.
    11. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
    12. Kadapakkam, Palani-Rajan & Kumar, P. C. & Riddick, Leigh A., 1998. "The impact of cash flows and firm size on investment: The international evidence," Journal of Banking & Finance, Elsevier, vol. 22(3), pages 293-320, March.
    13. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    14. Dasgupta, Sudipto & Sengupta, Kunal, 2007. "Corporate liquidity, investment and financial constraints: Implications from a multi-period model," Journal of Financial Intermediation, Elsevier, vol. 16(2), pages 151-174, April.
    15. Oliner, Stephen D & Rudebusch, Glenn D, 1992. "Sources of the Financing Hierarchy for Business Investment," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 643-54, November.
    16. Huntley Schaller, 1993. "Asymmetric Information, Liquidity Constraints and Canadian Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 552-74, August.
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    Cited by:
    1. Schoubben, Frederiek & Van Hulle, Cynthia, 2011. "Stock listing and financial flexibility," Journal of Business Research, Elsevier, vol. 64(5), pages 483-489, May.

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