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Financial distress, financial constraint and investment decision: Evidence from Brazil

  • Bassetto, Camila F.
  • Kalatzis, Aquiles E.G.
Registered author(s):

    This paper analyses the presence of financial constraint in the investment decisions of 367 Brazilian firms from 1997 to 2004, using a Bayesian econometric model with group-varying parameters. The motivation for this paper is the use of clustering techniques to group firms in a totally endogenous form. In order to classify the firms we used a hybrid clustering method, that is, hierarchical and non-hierarchical clustering techniques jointly. To estimate the parameters a Bayesian approach was considered. Prior distributions were assumed for the parameters, classifying the model in random or fixed effects. Ordinate predictive density criterion was used to select the model providing a better prediction. We tested thirty models and the better prediction considers the presence of 2 groups in the sample, assuming the fixed effect model with a Student t distribution with 20 degrees of freedom for the error. The results indicate robustness in the identification of financial constraint when the firms are classified by the clustering techniques.

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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 28 (2011)
    Issue (Month): 1-2 (January)
    Pages: 264-271

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    Handle: RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:264-271
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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    4. 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.
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    15. Kalatzis, Aquiles Elie Guimarães & Azzoni, Carlos Roberto, 2009. "Investment decisions in troubled times: A Bayesian approach applied to Brazilian firms," International Journal of Production Economics, Elsevier, vol. 120(2), pages 595-606, August.
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