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Richard B Freeman - One of the best experts on this subject based on the ideXlab platform.
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do Financial Constraints curb firms efforts to control pollution evidence from chinese manufacturing firms
Journal of Cleaner Production, 2019Co-Authors: Dongyang Zhang, Wencui Du, Liqun Zhuge, Zheming Tong, Richard B FreemanAbstract:Abstract Financial Constraints have long existed in China's manufacturing sectors. The growth of the manufacturing sector has been slowing in recent years due to increasingly strict environmental regulations that force factories to cut production. In this study, we discussed whether Financial Constraints were essential in firms' decision to control pollution, and matched the Annual Surveys of Industrial Firms dataset with the Ministry of Environmental Protection survey data on firms' expenditures in industrial waste gas emission control. The relationship between calculated investment-cash flow sensitivity (ICFS) and the environmental investment ratio (the ratio of firms' expenditures on pollution control to total assets) was analyzed. We found that, overall, Financial Constraints had a significantly negative effect on firms' efforts to reduce waste gas emission. State-owned enterprises (SOE) relieved Financial pressure mainly by seeking external financing sources to reduce emission. On the other hand, private-owned (POE) and foreign-owned enterprises (FOE), if efficiently financed internally, can reduce waste gas emission by increasing investment in waste gas treatment. This study provided a quantitative analysis on firms' Financial Constraints in environmental protection investment, contributing to the development of effective government policies on related issues in China.
Toni M Whited - One of the best experts on this subject based on the ideXlab platform.
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are Financial Constraints priced evidence from textual analysis
Review of Financial Studies, 2018Co-Authors: Matthias M M Buehlmaier, Toni M WhitedAbstract:We construct novel measures of Financial Constraints using textual analysis of firms’ annual reports and investigate their impact on stock returns. Our three measures capture access to equity markets, debt markets, and external Financial markets in general. In all cases, constrained firms earn higher returns, which move together and cannot be explained by the Fama and French (2015) factor model. A trading strategy based on Financial Constraints is most profitable for large, liquid stocks. Our results are strongest when we consider debt Constraints. A portfolio based on this measure earns an annualized risk-adjusted excess return of 6.5%. Received April 4, 2016; editorial decision December 17, 2017 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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Financial Constraints risk
Review of Financial Studies, 2006Co-Authors: Toni M Whited, Guojun WuAbstract:We construct an index of firms' external finance Constraints via generalized method of moments (GMM) estimation of an investment Euler equation. Unlike the commonly used KZ index, ours is consistent with firm characteristics associated with external finance Constraints. Constrained firms' returns move together, suggesting the existence of a Financial Constraints factor. This factor earns a positive but insignificant average return. Much of the variation in this factor cannot be explained by the Fama--French and momentum factors. Cross-sectional regressions of returns on our index and other firm characteristics show that constrained firms earn higher returns and that the Financial-Constraints effect dominates the size effect. Copyright 2006, Oxford University Press.
Carlos Carreira - One of the best experts on this subject based on the ideXlab platform.
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Measuring Firms' Financial Constraints
Handbook of Research on Accounting and Financial Studies, 2020Co-Authors: Carlos Carreira, João Eira, Filipe SilvaAbstract:Measuring firms' Financial Constraints can prove to be a difficult task for researchers because it is not possible to directly observe whether a firm is Financially constrained. This chapter surveys the existing methodologies to measure such Constraints at firm level, discussing the advantages and disadvantages of each one. In doing so, firstly, the authors review the direct and indirect measures of firms' Financial Constraints. Then they test the validity of the most commonly used indices using a large panel of (unlisted) Portuguese firms (2010-2017). The FCP index seems to outperform the other indices in capturing Financial Constraints of unlisted SMEs. This is not a surprising result, as most of the existing empirical literature on the field deals with listed (US) firms. It is not reasonable to expect that the coefficients of indices remain unchanged across countries and over time. Therefore, the authors propose their (re)estimation to apply them to different economies.
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The Role of Financial Constraints in the Services Sector: How Different is it from Manufacturing?
2016Co-Authors: Filipe Silva, Carlos CarreiraAbstract:Although the services sector has emerged as a major contributor to gross domestic product and employment in developed economies, very little attention has been paid to Financial Constraints faced by services firms. This paper represents a first attempt to model Financial Constraints in the services sector. In particular, we question the commonly accepted inverse relationship between firm size/age and Financial Constraints. To conduct our empirical tests, we estimate the Cash-Cash Flow Sensitivity using a large unbalanced panel of Portuguese firms. We also combine the recently developed Hovakimian-Hovakimian index of firm’s Financial Constraints with the sensitivity of cash stocks to cash-flow approach. Our results suggest that there are clear differences in Financial Constraints across the two sectors. First, firms operating in the services sector suffer from more severe Financial Constraints than those in manufacturing. Second, the relationship between size and Financial Constraints appears to be inverse in the case of the manufacturing sector, but not in services, for which we have U-shaped evidence. Finally, for the services sector we find some evidence suggesting an inverse relationship between age and Financial Constraints, while in manufacturing this relationship seems to be U-shaped.
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Financial Constraints, exports and monetary integration - Financial Constraints and exports: An analysis of Portuguese firms during the European monetary integration
2011Co-Authors: Filipe Silva, Carlos CarreiraAbstract:Financial Constraints are a key determinant that hinders firms' ability to export. This paper analyses the nexus between these Constraints and firms' engagement in international trade, as well as it explores the impact of the European monetary integration process upon firms' Financial Constraints. Therefore, we estimate cash to cash-flow sensitivities for different periods (1996-2000 and 2001-2004) and different groups of firms, according to their exporting and importing activity. Our results indicate that, depending on their international openness, the European monetary integration seems to have generally helped reducing the degree of Financial Constraints faced by Portuguese firms. Additionally, our findings suggest that, rather than unconstrained firms self-selecting into exporting, firms' Constraints were reduced after they started exporting.
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Financial Constraints: Lessons from the Portuguese Monetary Integration
2011Co-Authors: Filipe Silva, Carlos CarreiraAbstract:Financial Constraints are a determinant factor that hinders firms' ability to carry out their investment growth. This chapter aims at analysing the impact of Financial Constraints upon Portuguese firms over the period 1996-2004, which covers the implementation and convergence towards the common currency. It is well known that firms in economies with less developed Financial markets suffer from more severe Financial Constraints. This is particularly true for the Portuguese economy, as well as transition economies such as Serbia. Several lessons may be learned from the Portuguese case and its past experience of Monetary integration. Our main results indicate that Monetary integration seems to have generally helped reducing the degree of Financial Constraints faced by Portuguese firms, even though firms were affected differently, depending on their degree of openness to foreign markets.
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no deep pockets some stylized empirical results on firms Financial Constraints
Journal of Economic Surveys, 2010Co-Authors: Carlos Carreira, Filipe SilvaAbstract:This paper is a survey of recent empirical work on Financial Constraints faced by firms. It is organized as a series of stylized results which mirror what is generally understood about the severity of Financial Constraints and the effects that they have upon firms. The review of the literature shows that (a) Financial Constraints are a widespread key concern for firms, hindering their ability to carry out their optimal investment and growth trajectories and (b) the severity of such Constraints depends on institutional and firm specific characteristics, as well as on the nature of investment projects.
Murillo Campello - One of the best experts on this subject based on the ideXlab platform.
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Financial Constraints asset tangibility and corporate investment
National Bureau of Economic Research, 2006Co-Authors: Heitor Almeida, Murillo CampelloAbstract:When firms are able to pledge their assets as collateral, investment and borrowing become endogenous: pledgeable assets support more borrowings that in turn allow for further investment in pledgeable assets. We show that this credit multiplier has an important impact on investment when firms face credit Constraints: investment-cash flow sensitivities are increasing in the degree of tangibility of constrained firms' assets. If firms are unconstrained, however, investment-cash flow sensitivities are unaffected by asset tangibility. Crucially, asset tangibility itself may determine whether a firm faces credit Constraints - firms with more tangible assets may have greater access to external funds. This implies that the relationship between capital spending and cash flows is non-monotonic in the firm's asset tangibility. Our theory allows us to use a differences-in-differences approach to identify the effect of financing frictions on corporate investment: we compare the differential effect of asset tangibility on the sensitivity of investment to cash flow across different regimes of Financial Constraints. We implement this testing strategy on a large sample of manufacturing firms drawn from COMPUSTAT between 1985 and 2000. Our tests allow for the endogeneity of the firm's credit status, with asset tangibility influencing whether a firm is classified as credit constrained or unconstrained in a switching regression framework. The data strongly support our hypothesis about the role of asset tangibility on corporate investment under Financial Constraints.
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Financial Constraints and investment cash flow sensitivities new research directions
2001Co-Authors: Heitor Almeida, Murillo CampelloAbstract:A key assumption in the existing theoretical work on firm Financial Constraints is that these Constraints translate entirely into higher costs of funds. This approach poses two types of difficulties to the research on that topic. First, it inadvertently narrows our understanding about Financial Constraints since, in practice, firms often face credit rationing. Second, it is a matter of debate whether such an approach can deliver unambiguous implications for corporate investment. The current paper develops a theory explaining the relationship between corporate investment and cash flow when firms face credit quantity Constraints. We show that when firms' investments and use of external finance are endogenously related, investment-cash flow sensitivities increase as credit Constraints are relaxed. From an empirical perspective, our analysis suggests a consistent way of identifying the impact of Financial Constraints on corporate investment. Our predictions, however, are markedly different from those examined in most empirical studies in this area.
Zheming Tong - One of the best experts on this subject based on the ideXlab platform.
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do Financial Constraints curb firms efforts to control pollution evidence from chinese manufacturing firms
Journal of Cleaner Production, 2019Co-Authors: Dongyang Zhang, Wencui Du, Liqun Zhuge, Zheming Tong, Richard B FreemanAbstract:Abstract Financial Constraints have long existed in China's manufacturing sectors. The growth of the manufacturing sector has been slowing in recent years due to increasingly strict environmental regulations that force factories to cut production. In this study, we discussed whether Financial Constraints were essential in firms' decision to control pollution, and matched the Annual Surveys of Industrial Firms dataset with the Ministry of Environmental Protection survey data on firms' expenditures in industrial waste gas emission control. The relationship between calculated investment-cash flow sensitivity (ICFS) and the environmental investment ratio (the ratio of firms' expenditures on pollution control to total assets) was analyzed. We found that, overall, Financial Constraints had a significantly negative effect on firms' efforts to reduce waste gas emission. State-owned enterprises (SOE) relieved Financial pressure mainly by seeking external financing sources to reduce emission. On the other hand, private-owned (POE) and foreign-owned enterprises (FOE), if efficiently financed internally, can reduce waste gas emission by increasing investment in waste gas treatment. This study provided a quantitative analysis on firms' Financial Constraints in environmental protection investment, contributing to the development of effective government policies on related issues in China.
