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Investment cash flow sensitivity and financial constraint: a cluster analysis approach

Author

Listed:
  • Maurizio La Rocca

    (UniCal - Università della Calabria [Arcavacata di Rende, Italia] = University of Calabria [Italy] = Université de Calabre [Italie])

  • Raffaele Staglianò

    (MRM - Montpellier Research in Management - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier)

  • Tiziana La Rocca

    (UniMe - Università degli Studi di Messina = University of Messina)

  • Alfio Cariola

    (UniCal - Università della Calabria [Arcavacata di Rende, Italia] = University of Calabria [Italy] = Université de Calabre [Italie])

Abstract

This article sheds light on the mixed empirical evidence concerning financial constraint and investment sensitivity to cash flow. The literature suggests that measuring financial constraint is far from straightforward, and we therefore propose a cluster analysis procedure to identify unambiguous groups of constrained firms. We found the investment results to be highly sensitive to cash flow for financial constraint firms. Moreover, in line with previous research, our results showed that the traditional criteria used to identify financially constrained firms led to ambiguous interpretations. Overall, our results propose that the cluster analysis can be used to encompass the various single-criterion approaches, thereby providing a finer measurement of the financial constraint construct and deeper insight into the relationship between investment sensitivity to cash flow and financial constraint.

Suggested Citation

  • Maurizio La Rocca & Raffaele Staglianò & Tiziana La Rocca & Alfio Cariola, 2015. "Investment cash flow sensitivity and financial constraint: a cluster analysis approach," Post-Print hal-02011130, HAL.
    • Handle: RePEc:hal:journl:hal-02011130
    DOI: 10.1080/00036846.2015.1030568
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    Cited by:

    1. Benard Kipyegon Kirui & Nelson H.W. Wawire, 2018. "Measures of Financial Constraints in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 8(1), pages 217-231.
    2. Valentina Peruzzi, 2017. "Does family ownership structure affect investment-cash flow sensitivity? Evidence from Italian SMEs," Applied Economics, Taylor & Francis Journals, vol. 49(43), pages 4378-4393, September.
    3. Tommaso Oliviero & Sandro Rondinella & Alberto Zazzaro, 2024. "Are green firms more financially constrained? The sensitivity of investment to cash flow," CSEF Working Papers 700, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    4. Gaurav Gupta, 2022. "CEO’s educational background, economic policy uncertainty and investment-cash flow sensitivity: evidence from India," Applied Economics, Taylor & Francis Journals, vol. 54(5), pages 568-579, January.

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