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Firms from Financially Developed Economies Do Not Save Less

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  • Vadilyev, Alexander A.

Abstract

Contrary to evidence in Khurana et al. (2006), I find that firms from financially developed economies do not have systematically smaller propensities to save out of cash flow. This new result occurs for two interrelated reasons. First, cash flow uncertainty affects saving propensities at least as much as do external finance constraints. Second, although financial development eases external finance constraints, it also contributes to greater cash flow uncertainty through more innovation and higher asset intangibility. This cross-country result holds for financially constrained firms and those with greater cash flow uncertainty. The inverse relation between financial development and saving propensities can hold only for unconstrained firms and those with lower uncertainty. Liberalization of stock markets further bolsters the results.

Suggested Citation

  • Vadilyev, Alexander A., 2020. "Firms from Financially Developed Economies Do Not Save Less," Critical Finance Review, now publishers, vol. 9(1-2), pages 305-351, June.
    • Handle: RePEc:now:jnlcfr:104.00000085
    DOI: 10.1561/104.00000085
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    Cited by:

    1. Kadzima, Marvelous & Machokoto, Michael, 2023. "A semi-parametric analysis of the cash flow sensitivity of cash," Finance Research Letters, Elsevier, vol. 56(C).

    More about this item

    Keywords

    Corporate propensity to save/dissave; External finance constraints; Cash flow uncertainty; Financial development; $q$ measurement error;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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