Effect of debt structure concentration on the investment–cash flow sensitivity of Brazilian companies

João Paulo Augusto Eça, Wilson Tarantin Júnior and Maurício Ribeiro do Valle

International Journal of Managerial Finance, 2022, vol. 19, issue 2, 291-307

Abstract: Purpose - This paper aims to analyze whether a relationship exists between the debt structure concentration and investment–cash flow sensitivity of Brazilian companies. Design/methodology/approach - The study is based on a sample of 500 Brazilian firms (337 unlisted and 163 listed) in the 10-year period from 2010 to 2019 analyzed according to the investment–cash flow sensitivity model. Findings - The results show evidence that companies with more concentrated debt structures tend to have lower investment sensitivity to internal cash flow. In other words, firms with a greater concentration of debts tend to have less investment–cash flow sensitivity. In general, the results are robust to (1) variation of the debt concentration proxy and the independent variable; (2) the control of fixed effects in different dimensions and (3) use of estimator for endogeneity treatment, i.e. two-stage least squares (2SLS) and generalized method of moments (GMM). Originality/value - Various studies have investigated whether specific financing sources reduce financial constraints, but few have addressed the relationship between debt concentration and these constraints. Besides this, to the best of the authors’ knowledge, no previous study has investigated the mentioned relationship in a sample of unlisted firms. This analysis is relevant since the effects of financial constraints tend to be stronger on companies that have restricted access to the capital market.

Keywords: Heterogeneity; Homogeneity; Herfindahl–Hirschman Index (HHI); Investment–cash flow sensitivity (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-03-2021-0139

DOI: 10.1108/IJMF-03-2021-0139

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