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Financial Constraints and Cash Flow Sensitivity to Investment in Indian Listed Manufacturing Firms

In: Contemporary Trends in Accounting, Finance and Financial Institutions

Author

Listed:
  • Sanjeev Kumar

    (National Institute of Industrial Engineering)

  • K. S. Ranjani

    (National Institute of Industrial Engineering)

Abstract

The present study is an effort to test the validity of cash flow sensitivity to investment as a measure of financial constraints in Indian manufacturing firms using panel data for 768 listed firms over a period of six years (2010–2016). It also analyses effects of tangibility of assets in alleviating financial constraints. Findings suggest that stand-alone, small and lower debt capacity firms are more cash flow sensitive to investment in comparison to the business group affiliated, large and higher debt capacity firms. Investment for large firms is strongly influenced by capital structure whereas medium-size firms have a mixed effect of financial factors on investment decisions. Further, results for effects of tangibility of assets on easing financial constraint are found significant only in low market capitalization firms.

Suggested Citation

  • Sanjeev Kumar & K. S. Ranjani, 2018. "Financial Constraints and Cash Flow Sensitivity to Investment in Indian Listed Manufacturing Firms," Springer Proceedings in Business and Economics, in: Taufiq Choudhry & Jacek Mizerka (ed.), Contemporary Trends in Accounting, Finance and Financial Institutions, pages 57-69, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-72862-9_5
    DOI: 10.1007/978-3-319-72862-9_5
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    Cited by:

    1. Guo, Chun & Su, Wunhong & Song, Xiaobao & Hu, Xingxing, 2022. "Heterogeneous debt financing and environmental research & development: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 65-81.

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