Economics at your fingertips  

Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy

Gaurav Gupta () and Jitendra Mahakud ()
Additional contact information
Gaurav Gupta: Vellore Institute of Technology
Jitendra Mahakud: Indian Institute of Technology Kharagpur

Financial Innovation, 2019, vol. 5, issue 1, 1-28

Abstract: Abstract This study examines the impact of financial development on corporate investment in terms of their influence on financing constraints. This study also tries to find the effect of financial development on the investment-cash flow sensitivity across the size, degree of financial constraints and group affiliation of the firm. This study employs dynamic panel data model or more specifically system generalized method of moments (GMM) estimation technique. The estimation results reveal that cash flow affects the investment decision of the company positively, which implies that Indian firms are financially constrained. Also, we observe that financial development reduces the investment-cash flow sensitivity and the effect of financial development is more prominent for small size and standalone firms. The results are robust across the period and, for both financially constrained and unconstrained firms. This study contributes to the existing literature by analyzing the impact of financial development on the role of cash flow in determining investments undertaken by the Indian firms, which is an unexplored issue from an emerging market perspective.

Keywords: Business groups; Cash flow; Corporate investment; Financial constraints; Financial development; Firm size; Generalized method of moments (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2019-05-21
Handle: RePEc:spr:fininn:v:5:y:2019:i:1:d:10.1186_s40854-018-0118-9