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Cash Holdings and Finance Constraints in Indian Manufacturing Firms

Author

Listed:
  • Vikash Gautam

    (Chandragupt Institute of Management)

  • Ashish Singh

    (Indian Institute of Technology)

  • Sarthak Gaurav

    (London School of Economics)

Abstract

This paper attempts to explore the effect of finance constraints by examining the propensity of firms to save cash out of cash flows. Drawing on cash-cash flow sensitivity (CCFS), we overcome the errors in attributing information in cash flows to real and financial components. We employ endogenous regime switching model for our empirical exercise. This model allows for multiple sorting variables, does not require finance constraints to increase monotonically with the sorting variables and enables firms to endogenously change regime over the sample period. Our findings suggest that firms portray significantly higher CCFS in the event of finance constraints.

Suggested Citation

  • Vikash Gautam & Ashish Singh & Sarthak Gaurav, 2014. "Cash Holdings and Finance Constraints in Indian Manufacturing Firms," Research in Applied Economics, Macrothink Institute, vol. 6(3), pages 56-75, September.
    • Handle: RePEc:mth:raee88:v:6:y:2014:i:3:p:56-75
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    References listed on IDEAS

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    1. Basty Nadia, 2016. "Corporate Investment and Cash-Flow Sensitivity: Evidence from a Jasmin Revolution Period in Tunisian Market," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(11), pages 634-646, November.

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