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Financial repression and firm self-financing of investment: empirical evidence from Brazil

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  • Paul Natke

Abstract

Analysis of 86 Brazilian manufacturing firms operating during a period marked by some degree of financial repression demonstrates that investment spending influences the liquid asset holdings of firms. This self-finance motive is weaker than the transactions motive but, in general, remains statistically significant across a variety of model specifications. Small firms are more likely than large firms to finance investment spending through accumulation of liquid assets. Contrary to the complementarity hypothesis, however, there is some evidence that firms treat liquid assets and capital as substitutes. Specification tests comparing the Shaw hypothesis with the McKinnon hypothesis weakly favour the complementarity model.

Suggested Citation

  • Paul Natke, 1999. "Financial repression and firm self-financing of investment: empirical evidence from Brazil," Applied Economics, Taylor & Francis Journals, vol. 31(8), pages 1009-1019.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:8:p:1009-1019
    DOI: 10.1080/000368499323724
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    Cited by:

    1. Carl Mela & Praveen Kopalle, 2002. "The impact of collinearity on regression analysis: the asymmetric effect of negative and positive correlations," Applied Economics, Taylor & Francis Journals, vol. 34(6), pages 667-677.
    2. Muhammad Mehtab AZEEM & Ayub MOHAMMAD, 2015. "Money and Physical Capital Relationship: McKinnon’s Complementarity Hypothesis on Turkey’s Economy," Expert Journal of Finance, Sprint Investify, vol. 3(1), pages 21-30.

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