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Cash Flow Sensitivity of Cash: A Cross Country Analysis

Author

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  • Syed Manzur Quader

    (Independent Business School, Chittagong Independent University, 16, Jamal Khan, Chittagong, Bangladesh)

  • Mohammed Nayeem Abdullah

    (Independent Business School, Chittagong Independent University, 16, Jamal Khan, Chittagong, Bangladesh)

Abstract

Using a large panel of 5086 firms from 7 European countries, namely Belgium, France, Germany, Italy, Netherland, Sweden and UK over the period of 1981 to 2010, we made attempt to see the effect of financial constraints on international corporate policies based on their liquidity demand. Controlling for firm size, investment opportunities and alternative sources and competing uses of funds, a firm's decision to change its cash holdings is found to be positively and significantly related with internal cash flows. Our results further reveal that constrained firms like to save relatively more cash out of their cash inflows, whereas the unconstrained firms do not maintain any such significant cash hoarding behavior. The observed relationships prevail for the whole sample, within each countries and remain consistent across different estimation procedures and alternative financial constraint criteria. Our results thus point to the fact that average firms in our sample face constrained access to external finance due to financially imperfect and incomplete markets

Suggested Citation

  • Syed Manzur Quader & Mohammed Nayeem Abdullah, 2016. "Cash Flow Sensitivity of Cash: A Cross Country Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 562-572.
    • Handle: RePEc:eco:journ1:2016-02-28
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    Cited by:

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    2. Lou, Zhaohui & Xie, Qizhuo & Shen, Jim Huangnan & Lee, Chien-Chiang, 2024. "Does Supply Chain Finance (SCF) alleviate funding constraints of SMEs? Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).
    3. Galya Taseva, 2020. "Determinants of Short-term Liabilities of Financially Distressed SME-s," Business Management, D. A. Tsenov Academy of Economics, Svishtov, Bulgaria, issue 1 Year 20, pages 5-24.

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    More about this item

    Keywords

    Asymmetric Information; Financial Constraints; Cash Hoarding;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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