Abstract
The purpose of this study is to analyze the degree of financial constraints faced by the companies included on the Portuguese Stock General Index when accessing to external financing, especially after the beginning and during the most recent financial crisis that affected the world financial markets from 2007. According to this aim, a longitudinal database is collected from the SABI database and was analyzed under panel data methodology. The final sample is panel data of 430 firm-year observations, related to 43 companies, during the period 2006-2015.In line with previous literature, our results provide evidence that the payout ratio is an efficient measure of the degree of financial constraints; companies that pay out less (or no) dividends display higher sensitivity of the investment to the cash flow. Moreover, we also found that the investment sensitivity to cash flow intensifies immediately after and during the most recent financial crisis.
Highlights
The first hypothesis developed in the literature on external financing constraintsassessment is that the sensitivity of investment to internal financing, measured by cash flow, can be seen as a sign of financial constraints (Fazzari, Hubbard & Peterson, 1988)
The first results displayed are the descriptive statistics of our sample (Table 1), as well as the differences between means and medians for the 3 sub-samples: i) before the financial crisis (2006 – 2008); (ii) during the financial crisis (2009 – 2012); (iii) after the financial crisis (2013 – 2015)
This paper had the goal to evaluate the restrictions on the access to external financing felt by the group of portuguese companies that belong to the General Portuguese Stock Index (PSI) of Euronext Lisbon; and such evaluation would be made both during the most recent financial crisis, and off that period
Summary
The first hypothesis developed in the literature on external financing constraintsassessment is that the sensitivity of investment to internal financing, measured by cash flow, can be seen as a sign of financial constraints (Fazzari, Hubbard & Peterson, 1988). Given the recent financial crisis that has shaken the world (the crisis of the US mortgage credit market known as subprime) it is expected that financial constraints may have increased and that the topic gained additional importance for the majority of firms. Such crisis triggered in 2007 has affected the world financial markets with consequences that were felt untill now. In Portugal, the financial crisis quickly became an economic crisis which produced its main negative effects until the end of 2012, as in 2013 the European Central Bank changed its monetary policies, which allowed the reversal of a recessionary economic cycle experienced in previous years
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