Financial constraint
Financial Constraint is defined as a temporary restriction of internally generated funds which may require resources to be cut for investments.[1], including marketing resources, so that managers can achieve their financial goals.
During the past two decades, researchers have conducted a large number of empirical studies related to financial constraints, and the measurements they use have generated controversy. Fazari et al. (1987) in their seminal work, find a positive relationship between resources available for investment and cash flow[1]. Because external financing, such as taking on debt or acquiring capital, is not immediately available, such firms are heavily dependent on their internal cash flow[2]. However, many research papers show doubt on the idea that the relationship between investment and cash flow indicates financial constraint. The authors of another seminal study on the subject, Kaplan and Zingales (1997), find that firms classified as having financial constraint, such as in Fazzari et al (1987), appear to have less constriction and less sensitivity to cash flow[3], which contradicts the initial hypothesis[2]. Therefore, Kaplan and Zingales (1997) and Whited and Wu (2006) present new financial-constriction indexes. Whited and Wu (2006) develop a widely use financial constriction called index WW[4]. Despite controversy regarding financial constraint measurement, the literature recognizes its generalized use of cash flow as measure of financial constraint[2][5][6][7]
Recent research demonstrates that financial constraint is continue present in firms from The US and Latin America. The uncertain and volatile environment of global markets causes companies financial constraints. In addition to the fact that financial markets have increased the pressure on companies to obtain positive short-term results, in a situation of financial constraint, managers generally address this situation by decreasing the intensity of marketing to show acceptable short-term results to shareholders; however, these decisions impact negatively the long-term firm value[8]
References
- ↑ 1.0 1.1 "Financial Constraaint and corporrate investment". NBER. w2387.
- ↑ 2.0 2.1 2.2 Chen, Huafeng (Jason); Chen, Shaojun (Jenny) (2012-02-01). "Investment-cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series". Journal of Financial Economics. 103 (2): 393–410. doi:10.1016/j.jfineco.2011.08.009. ISSN 0304-405X. Unknown parameter
|s2cid=ignored (help) - ↑ Kaplan, S. N.; Zingales, L. (1997-02-01). "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?". The Quarterly Journal of Economics. 112 (1): 169–215. doi:10.1162/003355397555163. ISSN 0033-5533.
- ↑ Whited, Toni M.; Wu, Guojun (2006). "Financial Constraints Risk". Review of Financial Studies. 19 (2): 531–559. doi:10.1093/rfs/hhj012. ISSN 0893-9454.
- ↑ Grullon, Gustavo; Hund, John; Weston, James P. (2018-01-01). "Concentrating on q and cash flow". Journal of Financial Intermediation. 33: 1–15. doi:10.1016/j.jfi.2017.10.001. ISSN 1042-9573.
- ↑ Ughetto, Elisa (2016). "Investments, Financing Constraints and Buyouts: the Effect of Private Equity Investors on the Sensitivity of Investments to Cash Flow". The Manchester School. 84 (1): 25–54. doi:10.1111/manc.12085. ISSN 1467-9957. Unknown parameter
|s2cid=ignored (help) - ↑ Hall, Bronwyn H.; Moncada-Paternò-Castello, Pietro; Montresor, Sandro; Vezzani, Antonio (2016-04-02). "Financing constraints, R&D investments and innovative performances: new empirical evidence at the firm level for Europe". Economics of Innovation and New Technology. 25 (3): 183–196. doi:10.1080/10438599.2015.1076194. ISSN 1043-8599. Unknown parameter
|s2cid=ignored (help) - ↑ Palomino-Tamayo, Walter; Timana, Juan; Cerviño, Julio (2020-07-28). "The Firm Value and Marketing Intensity Decision in Conditions of Financial Constraint: A Comparative Study of the United States and Latin America". Journal of International Marketing. 28 (3): 21–39. doi:10.1177/1069031X20943533. Unknown parameter
|s2cid=ignored (help)
FINANCIAL CONSTRAINT
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