Abstract
The present paper aims to verify whether the most financially restricted companies use their cash flow for investment or for cash holdings. To this end, the cash flow sensitivity of investment as well as the cash flow sensitivity of cash for Brazilian publicly traded companies through the Threshold method is tested, given its classification in restricted and unrestricted companies. In this context, the models of Fazzari, Hubbard and Petersen (1984) and Almeida, Campello and Weisbach (2004) were applied, using as structural breaks the Dividends Paid, Total Assets, Z-score and KZ-index. The result of the analysis was not clear in relation to which behavior is predominant in Brazilian companies. Using the Total Asset as a Threshold, the model that was most representative was the one referring to investments in capital goods. But, considering the Z-score as a Threshold, the most representative model indicates that companies use more Cash Flow results for cash holdings. Dividends and KZ-index were not significant in the analysis.
Highlights
The studies of business finance have as an initial mark the paper of Modigliani and Miller (1958), in which they provided the basis for future studies on capital structure
Based on the development of the theoretical assumptions related to the cash flow sensitivity of the investment and in order to test the hypothesis of FHP (1988), the following hypotheses were developed: H0: Brazilian companies classified as financially restricted have more cash flow sensitivity of investment than unrestricted companies
To better describe the results, the following section is divided into four parts, as follows: (i) Descriptive statistics and correlation; (ii) Analysis of the cash flow sensitivity of investment (iii)
Summary
The studies of business finance have as an initial mark the paper of Modigliani and Miller (1958), in which they provided the basis for future studies on capital structure. In order to avoid a misclassification of financially constrained firms, Hansen’s Threshold method (1999) was used to analyze panel data with structural breaks, causing the financial constraints to be identified by the system, pointing to the specific moment of the existence of a structural break, assuming that there really are different behaviors between companies with and without financial restrictions This method provides more precise results and allows us to identify which variable is more appropriate to classify companies considering the current Brazilian reality. The cash flow sensitivity of investment and cash is widely debated in the literature, but separately Studies such as Fazzari, Hubbard and Petersen (1988), Kaplan and Zingales (KZ, 1997), Kadapakkam et al (1998) and Almeida and Campello (2007) address the issue of investments. Session two presents the literature review, session three presents the methodological procedures, session four discusses the results and session five elucidates the final remarks
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