IDEAS home Printed from https://ideas.repec.org/a/mth/raee88/v6y2014i3p56-75.html
   My bibliography  Save this article

Cash Holdings and Finance Constraints in Indian Manufacturing Firms

Author

Listed:
  • Vikash Gautam

    () (Chandragupt Institute of Management)

  • Ashish Singh

    () (Indian Institute of Technology)

  • Sarthak Gaurav

    (London School of Economics)

Abstract

This paper attempts to explore the effect of finance constraints by examining the propensity of firms to save cash out of cash flows. Drawing on cash-cash flow sensitivity (CCFS), we overcome the errors in attributing information in cash flows to real and financial components. We employ endogenous regime switching model for our empirical exercise. This model allows for multiple sorting variables, does not require finance constraints to increase monotonically with the sorting variables and enables firms to endogenously change regime over the sample period. Our findings suggest that firms portray significantly higher CCFS in the event of finance constraints.

Suggested Citation

  • Vikash Gautam & Ashish Singh & Sarthak Gaurav, 2014. "Cash Holdings and Finance Constraints in Indian Manufacturing Firms," Research in Applied Economics, Macrothink Institute, vol. 6(3), pages 56-75, September.
  • Handle: RePEc:mth:raee88:v:6:y:2014:i:3:p:56-75
    as

    Download full text from publisher

    File URL: http://www.macrothink.org/journal/index.php/rae/article/view/5621/5100
    Download Restriction: no

    File URL: http://www.macrothink.org/journal/index.php/rae/article/view/5621/5100
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Yi-Chen Lin, 2007. "The cash flow sensitivity of cash: evidence from Taiwan," Applied Financial Economics, Taylor & Francis Journals, vol. 17(12), pages 1013-1024.
    4. Edith Ginglinger & Khaoula Saddour, 2007. "Cash holdings, corporate governance and financial constraints," Post-Print halshs-00162411, HAL.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 33-60.
    7. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    8. Timothy A. Kruse, 2002. "Asset Liquidity and the Determinants of Asset Sales by Poorly Performing Firms," Financial Management, Financial Management Association, vol. 31(4), Winter.
    9. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Basty Nadia, 2016. "Corporate Investment and Cash-Flow Sensitivity: Evidence from a Jasmin Revolution Period in Tunisian Market," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(11), pages 634-646, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mth:raee88:v:6:y:2014:i:3:p:56-75. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Technical Support Office). General contact details of provider: http://www.macrothink.org/journal/index.php/rae .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.