Are Brazilian Firms Savings Sensitive to Cash Windfalls?

Cristiano M. Costa, Lourenco Paz and Bruno Funchal
Additional contact information
Cristiano M. Costa: Economics Department, University of Pennsylvania
Bruno Funchal: FUCAPE Business School

Brazilian Business Review, 2008, vol. 5, issue 2, 136-142

Abstract: Following Almeida, Campello and Weisbach (2003), we use the link between financial constraints and firm’s demand for liquidity to test the effect of financial constraints on firm policies in Brazil. The effect of financial constraints can be captured by a firm’s propensity to save cash out in addition of cash inflows. While constrained firms should have a positive cash flow sensitivity of cash, unconstrained firms’ cash savings should not be systematically related to cash flows. Using 2SLS method to deal with endogeneity problems, we estimate the cash flow sensitivity of cash using a large sample of Brazilian manufacturing firms over the 1995-2007 period and, using the access to international financial markets trough ADRs as a criterion for financial constraint, we find that firms that are more likely to be financially constrained display a significantly positive cash flow sensitivity of cash, while unconstrained firms do not.

Keywords: cash flow sensitivity of cash; financial constraints; cash policy. (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: ARE BRAZILIAN FIRMS SAVINGS SENSITIVE TO CASH WINDFALLS? (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bbz:fcpbbr:v:5:y:2008:i:2:p:136-142

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