Author

  • Letenah Ejigu Wale

    • College of Economics and Management Sciences, University of South Africa (UNISA), South Africa
    • South Africa

Abstract

The use of investment cash flow sensitivity as a measure of financing constraints is an unresolved research agenda. This paper endeavors to explain the conflicting evidence by using proxies for both internal financial constraint and external financial constraint measures. Data is taken from selected six African countries, a region where no previous studies are conducted. It is observed that the investment curve is U- shaped when firms are classified on the basis of internal financial constraint measure (i.e. cash flow). Using external financial constraint proxies (age, size and payout) it is found that all category of firms show positive and significant investment cash flow sensitivity. This suggests that the sampled African firms are externally financial constrained. It is concluded that the way firms are a priori classified as internal vs. external financial constrained matters. This raises the issue of whether the term financial constraints itself is a multidimensional construct.

Keywords

References

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How to Cite

Wale, L. E. (2014). Investment Cash Flow Sensitivity as a Measure of Financing Constraints: Evidence from Selected African Countries. Journal of Economics and Behavioral Studies, 6(8), 647-657. https://doi.org/10.22610/jebs.v6i8.525

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Research Paper

Published in

Vol. 6 No. 8 (2014) Banking Relationships, Local Development & Green Markets View issue contents

Published

2014-08-30

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