Internal financial constraints, external financial constraints, and investment choice: Evidence from a panel of UK firms.

By A. Guariglia. 2008

388 citations recorded by the source corpus.

This paper uses a panel of 24,184 UK firms over the period 1993–2003 to study the extent to which the sensitivity of investment to cash flow differs at firms facing different degrees of internal and external financial constraints. Our results suggest that when the sample is split on the basis of the level of internal funds available to the firms, the relationship between investment and cash flow is U-shaped. On the other hand, the sensitivity of investment to cash flow tends to increase monotonically with the degree of external financial constraints faced by firms. Combining the internal with the external financial constraints, we find that the dependence of investment on cash flow is strongest for those externally financially constrained firms that have a relatively high level of internal funds.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/a9683012e01e8d9aa83c19a7cc79dc3168f246d0

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Citations in the corpus

A balancing act: Managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market (2016, background): “17 and young firms are typically characterized by high idiosyncratic risk and high bankruptcy costs, which might exclude them from credit markets, or make their access to external finance more costly (Gertler & Gilchrist 1994; Beck et al. 2005; Clementi & Hopenhayn 2006; Guariglia 2008).”
Financial flexibility, corporate investment and performance: evidence from financial crises (2013, neutral): “Alternative ways to avoid the mis-measurement of the proxy of growth opportunities include: (1) the use of contracted capital expenditures alongside MTB in the model (see Carpenter and Guariglia 2008) and (2) the use of an error-correction specification (see Guariglia 2008).”
Does the financial crisis change the effect of financing on investment? Evidence from private SMEs (2020, neutral): “Another way to measure investment is to consider tangible fixed assets (Akbar et al., 2013; Guariglia, 2008) and intangible fixed assets (Bigelli et al.”
R&D sensitivity to asset sale proceeds: New evidence on financing constraints and intangible investment (2013, methodology): “Several recent studies use similar approaches to address endogeneity concerns in situations where no obvious external 16 instruments are present (e.g., Beck and Levine, 2004; Guariglia, 2008; Carpenter and Guariglia, 2008; Faulkender, Flannery, Hankins, and Smith, 2011).”
Corporate investment efficiency: The role of financial development in firms with financing constraints and agency issues in OECD non-financial firms (2019, methodology): “According to Richardson (2006) and Guariglia and Yang (2016), any surplus amount of free cash flow, i.”
A European empirical study of the relationship between firms’ intellectual capital, financial performance and market value (2017, methodology): “Following the suggestions of Guariglia (2008), in order to mitigate potential survivor bias, we allowed the entrance and exit of firms in the research sample.”
Bank lending constraints, trade credit and alternative financing during the financial crisis: Evidence from European SMEs (2014, background): “…estimating the relationship between measures of internal funds (such as cash stock or cash flow) and outcome variables (investment, inventory management or firm growth) (Fazzari et al., 1988; Chirinko, 1993; Hubbard, 1998; Love, 2003; Guariglia, 2008; O’Toole et al., 2014; Ryan et al., 2014).”
Investment and Financing Constraints in China: Does Working Capital Management Make a Difference? (2013, methodology): “18 We report total assets growth for consistency with Guariglia et al. (2011). Similar trends (not reported) were observed for real sales growth.”
To what extent does corporate liquidity affect M&A decisions, method of payment and performance? Evidence from China (2017, background): “and Guariglia, A. and Guo, J. (2017) 'To what extent does corporate liquidity a ect MA decisions, method of payment and performance? Evidence from China.”
On the relationship between intellectual capital and financial performance: A panel data analysis on SME hotels (2018, methodology): “Therefore, we follow the suggestions of Guariglia (2008), Bond et al. (2003) and Cummins et al. (2006) in order to mitigate potential survivor bias by allowing the entrance and exit of firms.”
Working capital management, corporate performance, and financial constraints (2014, methodology): “and Guariglia, A. (2008) Cash flow, investment, and investment opportunities: new tests using UK panel data, Journal of Banking and Finance 32, 1894-1906.”