A theory of operational cash holding, endogenous financial constraints, and credit rationing

Investment-cash flow sensitivities, credit rationing and financing constraints

The controversy over whether investment-cash flow sensitivity is a good indicator of financing constraints is still unresolved. We tackle it from several different angles and cross-validate our analysis with both balance sheet and qualitative data on self-declared credit rationing and financing constraints. Our qualitative information shows that (self-declared) credit rationing is (weakly) rela...

Cash Constraints and Credit Corsets: The Chimera of Interenterprise Credit

Consider (with apologies to Adam Smith) an efficient pin producer selling half her production in the convertible currency market (where buyers are picky) and the rest in the domestic market to inefficient, financially shaky (state-owned) enterprises. The pins are similar but not identical, with only good pins sold in the convertible currency market and both good and bad pins in the domestic mar...

Credit Constraints and Investment-Cash Flow Sensitivities

This paper analyzes the investment behavior of ...rms under a quantity constraint on the amount of external funds which can be raised at a given cost (credit constraints). In this world, investment-cash ‡ow sensitivities decrease in the degree of credit constraints, until a ...rm becomes e¤ectively unconstrained. This generates a “U-shaped” curve for the relationship between sensitivities and c...

A Theory and Test of Credit Rationing: Comment

A bright side of financial constraints in cash management☆

Article history: Received 31 August 2009 Received in revised form 8 July 2011 Accepted 18 July 2011 Available online 22 August 2011 This paper tests whether financial constraints play a disciplinary role in cash dissipation in the presence of agency problems. We hypothesize that when firms have difficulty raising external funds, empire-building managers of cash-rich firms will be less likely to...