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The impact of cross-ownership on the reaction of corporate investment and financing constraints: a panel threshold model

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  • Chung-Hua Shen
  • Chien-An Wang

Abstract

This paper studies whether or not investment decisions are financially constrained in a cross-ownership system of Taiwan. Different from the financial structure in the USA, subsidiaries in Taiwan are allowed to buy stocks of the parent companies. Hence, the conventional debt-to-equity ratio is inappropriate to divide firms into high and low-debt firms. Instead, a new threshold variable - the adjusted debt-equity ratio (ADE) - is employed to divide the sample into high-debt firms and low-debt firms. A panel of 115 Taiwan-listed firms for the period 1991-1997 is used. Evidence supports the cash flow hypothesis and ADE has a notable significant influence on the financial constraints.

Suggested Citation

  • Chung-Hua Shen & Chien-An Wang, 2005. "The impact of cross-ownership on the reaction of corporate investment and financing constraints: a panel threshold model," Applied Economics, Taylor & Francis Journals, vol. 37(20), pages 2315-2325.
    • Handle: RePEc:taf:applec:v:37:y:2005:i:20:p:2315-2325
    DOI: 10.1080/00036840500218786
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    References listed on IDEAS

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    Cited by:

    1. Weili Huang, 2021. "Threshold effect of gender composition in the top management team on firm innovation: New evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 551-563, April.
    2. Jan Jacobs & Gerard Kuper & Daan van Soest, 2009. "On the effect of high energy prices on investment," Applied Economics, Taylor & Francis Journals, vol. 41(27), pages 3483-3490.
    3. Chung‐Hua Shen & Hsing‐Hua Hsu, 2022. "The determinants of Asian banking crises—Application of the panel threshold logit model," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 248-277, March.
    4. Mei-Hui Wang & Tai-Hsin Huang, 2009. "Threshold effects of financial status on the cost frontiers of financial institutions in nondynamic panels," Applied Economics, Taylor & Francis Journals, vol. 41(26), pages 3389-3401.
    5. Mu-Shun Wang, 2013. "Idiosyncratic Volatility and the Expected Stock Returns for Exploring the Relationship with Panel Threshold Regression," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 20(2), pages 113-129, May.

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