Investment-cash Flow Research Articles

Investment–Cash Flow Sensitivity: Fact or Fiction?

We examine whether internal funds matter for investment when the measurement error inqis addressed. By carefully employing methodologies that tackle the measurement error inq, we show that cash flow is a significant determinant of investment. We also find that an analyst-forecast-basedqmeasure is not superior to a stock-market-basedqmeasure. We further propose an approach that uses two alternative proxies ofqas instruments for addressing measurement error. Our evidence indicates that instrumental-variables-type generalized method of moments estimators yield empirically well-specified models.

Banking system reform and investment–cash flow relation: Case of a small transition economy

This research examines the effect of banking system reform which is measured by foreign bank's presence on investment–cash flow relation in a context of a small transition economy. The U-shape relation between investment and cash flow is found. We also find evidence that the presence of foreign banks in Vietnam results in decreasing in dependence on local banks and has changed corporate investment behaviors. Company investments are less reliant on internal cash flow in the post reform period. Although overinvestment of state controlled firms is not reduced but underinvestment problem of non-state-controlled listed firms is mitigated due to better accessibility to bank loans. The investigated relation between investment and leverage is robust for this conclusion.

Short communication: East-West European farm investment behaviour - The role of financial constraints and public support

The article investigated farm investment behaviour among East (Hungarian and Slovenian) and West (French) European Union farms using individual farm accountancy panel data for the 2003-2008 period. Despite differences in farm structures, except for the presence of capital market imperfections evidenced in the East, farms’ investment behaviour was not substantially different. Farm gross investment was positively associated with real sales’ growth. In addition, it was positively associated with public investment subsidies which can mitigate capital market imperfections in the short-term. On the long run, the farm’s ability to successfully compete in the output market by selling produce and securing a sufficient cash flow for investment is crucial.

Financial conditions and corporate investment: evidence from Vietnam

PurposeThis study aims to investigate the influence of macro-financial conditions on firm-level capital allocation as a micro-transmission mechanism of monetary policy in Vietnam.Design/methodology/approachThe authors employ a dynamic model of investment based on the Euler equation approach that allows for financial frictions. The financial conditions are proxied by a composite index of the current states of financial variables, including interest rates, exchange rates, stock prices, and credit demand – which captures short-term shocks in monetary transmission channels. Corporate financing constraints, as a reflection of financial frictions, are measured by the sensitivity of investment to internal funds, which are extensively examined in terms of both negative and positive cash flows.FindingsIn the presence of a non-monotonic (or U-shaped) investment–cash flow relation, the empirical evidence from Vietnamese listed firms indicates that financial conditions affect investment behavior for only firms with negative cash flows, in the sense that better financial conditions alleviate the level of “negative” financing constraints (i.e. the sensitivity of investment to negative cash flow). This effect is greater for larger firms and more likely pronounced for firms without state ownership.Originality/valueThis study contributes to the literature on corporate financing constraints in a manner of considering the macroeconomic dimension, specifically exploring the asymmetric impacts of financial conditions on the investment sensitivity to cash flow.

Regional Financial Developments and Research and Development Investment–Cash Flow Sensitivity: Evidence on Chinese Public High‐Tech Companies

AbstractIn a sample of 485 Chinese public high‐tech companies, we show that the R&D investment is significantly dependent on internal cash flow. Based on the sizable discrepancies of stock market and financial intermediary developments in the East, Middle and West regions of China, empirical estimation provides strong evidence that the financial developments in both credit and equity markets have large effects on reducing financing constraints. The effects are most significant in the financially advanced East region of China.

R&D investment–cash flow sensitivity under managerial optimism

The aim of this paper is to explore the effect of managerial optimism on the R&D cash-flow (hereafter, R&D ICF) sensitivity. Departing from 864 yearly observations between 108 public firms listed at the NYSE from 1999 to 2010, we construct a measure of managerial optimism as it described by Malmendier and Tate (2005) and we use a standard Q-model of investment. Our results report that firms with optimistic CEOs apply a strong positive and significant R&D ICF sensitivity. Running estimation for sub-sample firms, we find that the sensitivity of R&D investment to cash flows is stronger for more constrained group than the less constrained group.

PENGARUH LABA AKUNTANSI DAN ARUS KAS TERHADAP RETURN SAHAM PERUSAHAAN YANG LISTING DI BEI

This study aimed to examine the effect of accounting earnings and cash flow to stock returns companies listed on the Stock Exchange . This study used a sample of 44 companies. Samples were selected based on purposive sampling technique. Data used is secondary data. Analysis of the data using the classical assumption test and multiple linear regression analysis. Variables used in this study is the accounting profit , operating cash flow , cash flow financing , and cash flows of the investment as an independent variable. Stock return as the dependent variable. The results show that accounting earnings and cash flow simultaneously significant effect on stock returns. Accounting profit significantly influence stock returns. Operating cash flow does not have a significant effect on stock returns . Financing cash flows have a significant effect on stock returns. Investment cash flow does not have a significant effect on stock returns. Keywords : Earnings, Cash, Stock Return

Corporate Culture and Investment–Cash Flow Sensitivity

Can firms overcome credit constraints with a corporate culture of high integrity? We empirically address this question by studying their investment–cash flow sensitivities. We identify firms with a culture of integrity through textual analysis of public documents in a sample of Chinese listed firms and also through corporate culture statements. Our results show that firms with an integrity-focused culture have lower investment–cash flow sensitivity, even after we address endogeneity concerns. However, we also find that for the culture to reduce the investment–cash flow sensitivity, external stakeholders must be able to verify this culture through a low information asymmetry environment. Overall, our findings show that a corporate culture of high integrity can mitigate a firm’s external transaction costs.

A New Method to Estimate NPV from the Capital Amortization Schedule and an Insight into Why NPV Is Not the Appropriate Criterion for Capital Investment Decision

This paper introduces a new method, different from the discounted cash flow (DCF) method, for the first time, to estimate NPV and IRR. This method makes use of the capital amortization schedule (CAS). The functional relationship between the closing balance in CAS and the NPV is derived and illustrated. Accordingly, the present value of the closing balance in a CAS is the NPV. NPV is estimated using the new method for some selected normal and non-normal net cash flow (NCF) investment projects and presented here. The estimated NPV perfectly matches with the NPV estimated by the DCF method. This method is more transparent and provides a better insight into the suitability of the NPV criterion. NPV represents the unutilised cash inflow and when it is fully utilised, the NPV will become zero and return on invested capital will be the highest, equivalent to IRR. Also, when the cost of capital is in percentage term, the return on invested capital (ROIC) must be in percentage term like the IRR and not in two parts viz. percentage term (hurdle rate) and the balance in absolute term (NPV). The method presented exposes the weakness of the NPV and raises question about its validity as a criterion in capital investment. The CAS based method also makes it implicitly clear that there is no reinvestment of the intermediate income. As the modified IRR (MIRR) is based on the assumption of reinvestment, MIRR might become redundant if there is no reinvestment. Text books and other published works related to Corporate Finance, Investment Analysis, Capital Budgeting and cost-benefit analysis must review these findings and consider revising the relevant chapters or sections accordingly.

The U-Shape Association between State Ownership and Financial Constraints: Evidence from China

We propose new empirical evidence on the negative relationship between state ownership and firms’ financial constraints. Our finding supports for the diminishing effect of market transition on political connections valuation in the context of 1,809 Chinese listed companies over 1999-2015. We find that lower performance of state-controlled firms leads their investment more dependent on generated internal funds compared with their private-controlled counterparts. Additionally, we find that financial constraints vary significantly across different types of state owners. This study also sheds further light on the debate over the use of investment cash flow sensitivity (ICFS) to interpret the extent of financial constraints through confirming the validity of this measure on the Chinese market.

Corporate Financial Constraints and Internal Capital Markets: Evidence from Emerging Countries

This paper investigates whether the internal capital markets of business groups mitigate the financial constraints of affiliated firms,and affect their financing policies.It aims to extend the evidence on internal capital markets to emerging countries where financing constraints are prevalent, and adds to the literature on trade credit by revealing that the distressed group-affiliated firms rely less on trade credit than their non-affiliated counterparts despite the positive relation between trade credit and distress. Group firms that have high investments in prior periods use less trade credit in the subsequent periods than non-affiliated firms. The study rests on panel data regressions covering 3906 firms from six emerging countries for the 2006-2012 period. The findings indicate that the Q-sensitivity of the investments of affiliated firms is lower than that of their unaffiliated counterparts in all countries and that the investment cash flow sensitivity of affiliates is lower in five countries, strongly indicating that group-affiliated firms are financially less constrained. The distressed group firms use significantly lower leverage than distressed unaffiliated firms despite the positive relation between distress and leverage. Group firms in high–Q industries invest less than unaffiliated firms. This paper contributes to the existing literature on internal capital markets by expanding the scope to emerging countries where market imperfections and financing constraints are more pronounced, and provides strong evidence for the role of business groups, prevalent in most emerging countries, in mitigating the constraints on the investments and financing choices of the group-affiliated firms.

What drives investment–cash flow sensitivity around the World? An asset tangibility Perspective

Motivated by ongoing debates on investment–cash flow sensitivity (ICFS) and its documented decline and disappearance in the U.S., we investigate the determinants of ICFS. Using firm-level data across 41 countries for the 1993–2013 period, we document an important role of asset tangibility in explaining the patterns in ICFS. Asset tangibility affects ICFS through two channels: investment intensity and cash flow persistence. As the share of tangible capital, investment and cash flow persistence has fallen in developed economies, ICFS has declined. In contrast, as developing economies operate with more tangible capital, have higher investment rates and more persistent cash flows, their ICFS is more stable. The results support our explanation of ICFS as a reflection of capital (investment) intensity and income predictability, rather than a measure of financial constraints.

Regional Financial Developments and Research and Development Investment Cash Flow Sensitivity: Evidence on Chinese Public High-Tech Companies

In a sample of 485 Chinese public high-tech companies, we show that the R&D investment is significantly dependent on internal cash flow. Based on the sizable discrepancies of stock market and financial intermediary developments in the East, Middle and West regions of China, empirical estimation provides strong evidence that the financial developments in both credit and equity markets have large effects on reducing financing constraints. The effects are most significant in the financially advanced East region of China.

ANÁLISE DA VIABILIDADE ECONÔMICA DO PROCESSO DE PIRÓLISE PARA TRATAMENTO DE RESÍDUOS SÓLIDOS URBANOS: ESTUDO DE CASO APLICADO A UMA CIDADE DE MÉDIO PORTE

Find new solutions for the treatment of municipal solid waste is a challenge of modern society. The fast pyrolysis process arises as an alternative, besides generating by-products of commercial value. The general objective of this work is to evaluate the economic viability of the pyrolysis process for treatment of municipal solid waste (MSW) applied to a medium-sized town. To meet the overall objective were determined specific objectives who understood the locational alternatives study and methods of investment analysis provided certainty, uncertainty, and risk analysis. The pyrolysis process for MSW was attractive due to high operating costs and taxes on the sale of electricity and fertilizer. The Net present value-NPV resulting cash flow is negative and there is no return on capital invested, for both the enterprise and the investor's cash flow. In this case, the research has enabled the study of vario us scenarios for economic viability of the project through sensitivity analysis. Considering the possibility of integration with more municipalities to supplement the volume of raw material, reducing the cost of transport of MSW pyrolysis plant and even th e increase in the price of electrical energy for sale, or tax exemption, the project is a cost effective alternative, while in addition to the economic benefits, the pyrolysis plant enables the Elimination of environmental liabilities generated by landfill s.

A Literature Review of Financial Development Relieving Enterprise Financing Constraints on R&D

The aim of this paper is to sort out and review the literature on the microscopic promotion of financial development and technological progress, and further summarize the research status of the financial development to relieve enterprise R&D financing constraints. It is pointed that financial development is indeed able to promote technological progress through relieving R&D financing constraints of enterprise from three different perspectives, such as financial development functions, investment-cash flow and other perspectives. Based on the systematical analysis of research achievements, the deficiencies of existing researches and prospects are provided for future researches. The contribution of this paper is not only a necessary reference for the future research in this field, but also has an important theoretical value and practical significance for the long-term sustainable development of the economy in the future

A look at the actual cost of capital of US firms

The capital asset pricing model (CAPM) receives both criticism and widespread adoption by practitioners and academics as the weighted average cost of capital (WACC) equity component. This study introduces two new costs of equity measures to address CAPM criticisms and provide new perspective on WACC estimates. The firm-based measure focuses on firm–investor cash flows while the market-based measure focuses solely on actual market returns. This study applies its firm and market-based WACC measures, along with the traditional CAPM-based WACC measure, to a broad sector-based cross section from 1972 to 2015. Results show that traditional CAPM-based WACC estimates consistently lie between the new firm and market-based WACC estimates. The central positioning of CAPM WACC supports its use as a conservative hurdle rate estimate for firms and a conservative expected return estimate for investors relative to actual returns.

The source of investment cash flow sensitivity in manufacturing firms: Is it asymmetric information or agency costs?

In the literature, positive investment cash flow sensitivity is attributed to either asymmetric information induced financing constraints or the agency costs of free cash flow. Using data from a sample of 68 manufacturing firms listed on the South African JSE, this paper contributes to the literature by investigating the source of investment cash flow sensitivity. We have found that asymmetric information explains the positive investment cash flow sensitivity better than agency costs. Furthermore, asymmetric information has been observed to be more pronounced in low-dividend-paying firms and small firms. Despite South Africa’s having a developed financial system by international standards, small firms are seen to be financially constrained. We attribute the absence of investment cash flow sensitivity due to agency costs to good corporate governance of South African listed firms. Thus the paper provides further evidence in support of the proposition in the literature that the source of investment cash flow sensitivity may depend on the institutional setting of a country, such as its corporate governance.

ANALISA PENGARUH LABA BERSIH DAN ARUS KAS TERHADAP RETURN SAHAM PADA PERUSAHAAN FOOD AND BEVERAGES: STUDI EMPIRIS DI BURSA EFEK INDONESIA

Target of this research to test influence of net income and cash flow to stock returns of at Food and Bevarages Companys: empirical study in effect exchange Indonesia. Variable used by as much 5 consisted of by 4 independent variable and 1 variable dependen. 4 independent variable that is net income, cash flow operate for, cash flow investment, and the cash flow financing. While 1 variable of dependen that is stock returns.This research test 10 Food and Bevarages Companys which have been enlisted in effect echange of Indonesia and have published financial statement which have been made an audit of by 31 December 2012 – 2015 representing the part of consideration of at determination of sampel by using purposive sampling. Statistical methods used by is doubled linear regression by using tes-t and tes F of at storey level of signifikansi 5%.Result of research individually prove that net income and cash flow operating have an effect to return share. While together is net income, cash flow operate for, cash flow investment, and cash flow of financing have an effect on positive to stock returns. This matter show indication that stock returns of influenced by Food and Beverage Company emiten of existence of publicing it the financial statement specially which deal with information of performance of company of found on income statement and cash flow statement.

Investment and Cash Flow: New Evidence

We study the investment–cash flow sensitivities of U.S. firms from 1971–2009. Our tests extend the literature in several key ways and provide strong evidence that cash flow explains investment beyond its correlation with q. A dollar of current- and prior-year cash flow is associated with $0.32 of additional investment for firms that are the least likely to be constrained and $0.63 of additional investment for firms that are the most likely to be constrained, even after correcting for measurement error in q. Our results suggest that financing constraints and free-cash-flow problems are important for investment decisions.

ANALISIS PENGARUH ARUS KAS TERHADAPPROFITABILITAS PADA PT MAYORA INDAH TBK

This study aims to determine whether the cash flows either partially or simultaneously affect the profitability (ROA) at PT Mayora Indah Tbk 2010-2014. Research on the cash flow analysis of the effect on profitability. This type of research is a correlational study with a total sample of 10 per six months in the financial statements at PT Mayora Indah Tbk during the period 2010-2014. The process of data analysis done first is the classic assumption test before hypothesis test. Statistical method used is multiple linear regression using SPSS. The results showed that cash flow is comprised of operating cash flow, cash flow investing and financing cash flows simultaneously there is no significant effect on profitability (ROA). Partial test results show that the variable operating cash flow, cash flow investing and financing cash flow is not a significant influence on profitability (ROA).Keywords: operating cash flow, investing cash flows, financing cash flow and profitability (ROA).