Financial distress, financial constraint and investment decision: Evidence from Brazil

Camila F. Bassetto and Aquiles E.G. Kalatzis

Economic Modelling, 2011, vol. 28, issue 1-2, 264-271

Abstract: This paper analyses the presence of financial constraint in the investment decisions of 367 Brazilian firms from 1997 to 2004, using a Bayesian econometric model with group-varying parameters. The motivation for this paper is the use of clustering techniques to group firms in a totally endogenous form. In order to classify the firms we used a hybrid clustering method, that is, hierarchical and non-hierarchical clustering techniques jointly. To estimate the parameters a Bayesian approach was considered. Prior distributions were assumed for the parameters, classifying the model in random or fixed effects. Ordinate predictive density criterion was used to select the model providing a better prediction. We tested thirty models and the better prediction considers the presence of 2 groups in the sample, assuming the fixed effect model with a Student t distribution with 20 degrees of freedom for the error. The results indicate robustness in the identification of financial constraint when the firms are classified by the clustering techniques.

Keywords: Bayesian; econometrics; Clustering; techniques; Financial; constraint; Investment; decision (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (10)

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