ARE BRAZILIAN FIRMS SAVINGS SENSITIVE TO CASH WINDFALLS?

Cristiano Machado Costa and Lourenco S. Paz

Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] from ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]

Abstract: One of the most studied topics in the corporate finance literature is the effect of financial constraints on firms' investments decisions. Trying to explain this issue, Almeida, Campello andWeisbach (2003) modeled the relationship between the financial constraints faced by firms and their demand for liquidity. They show that if one firm is financial constrained we must expect positive cash _ow sensitivity from cash windfalls, while for unconstrained firms this relation does not hold. The aim of this article is to check this proposition using annual data of 336 non-financial Brazilian public firms, from 1993 to 2002. Our results show that financial constrained Brazilian firms presented a positive relationship between cash _ow increases and variations of cash holdings. We also suggest that credit constraints in Brazil are directly related to the size of firms.

JEL-codes: D23 G32 G31 (search for similar items in EconPapers)
Date: 2004
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