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Will Both Direct Financial Development and Indirect Financial Development Mitigate Investment Sensitivity to Cash Flow? The Experience of Taiwan

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  • Tzu-Yun Tseng

Abstract

The Taiwanese government introduced a financial reform plan to encourage financial development. This paper examines this reform strategy to determine whether investment sensitivity to cash flow has actually been reduced. We find that financial development in Taiwan has resulted in improved access to external capital, which reduces firms' reliance on internally generated funds for investment. However, the reduction of investment sensitivity to cash flow is due to indirect financial development (development of financial intermediaries), but not direct financial development (stock market development). After several robustness tests, the main findings remain unchanged.

Suggested Citation

  • Tzu-Yun Tseng, 2012. "Will Both Direct Financial Development and Indirect Financial Development Mitigate Investment Sensitivity to Cash Flow? The Experience of Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 139-152, July.
    • Handle: RePEc:mes:emfitr:v:48:y:2012:i:0:p:139-152
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    Cited by:

    1. Xinxin Zhao & Zongjun Wang & Min Deng, 2019. "Interest Rate Marketization, Financing Constraints and R&D Investments: Evidence from China," Sustainability, MDPI, vol. 11(8), pages 1-17, April.
    2. Črnigoj, Matjaž & Verbič, Miroslav, 2014. "Financial constraints and corporate investments during the current financial and economic crisis: The credit crunch and investment decisions of Slovenian firms," Economic Systems, Elsevier, vol. 38(4), pages 502-517.
    3. Mar𨁂el鮠Lozano & Simone Caltabiano, 2015. "Cross institutional cash and dividend policies: focusing on Brazilian firms," Applied Economics, Taylor & Francis Journals, vol. 47(3), pages 239-254, January.

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