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Firm investment, finance constraint and voluntary asset sales: the evidence from Indian manufacturing firms

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  • Vikash Gautam
  • Rajendra Vaidya

Abstract

This paper examines the importance of finance constraints for firm investment expenditures by looking at the investment-asset sales sensitivity in financially healthy Indian manufacturing firms. Voluntary asset sales is a cleaner indicator of firms' liquidity than cash flows since it is unlikely to influence firms' growth opportunities unless they are financially constrained. We take care of the endogeneity and the implicit monotonicity problems, which are much debated in the literature, by using an endogenous regime switching regression model. We find that the investment-asset sales sensitivity is significantly greater for firms that are likely to be financially constraints.

Suggested Citation

  • Vikash Gautam & Rajendra Vaidya, 2013. "Firm investment, finance constraint and voluntary asset sales: the evidence from Indian manufacturing firms," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(1), pages 114-130, March.
    • Handle: RePEc:taf:macfem:v:6:y:2013:i:1:p:114-130
    DOI: 10.1080/17520843.2012.725419
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    Cited by:

    1. Vikash Gautam & Rajendra R. Vaidya, 2018. "Evidence on the determinants of investment-cash flow sensitivity," Indian Economic Review, Springer, vol. 53(1), pages 229-244, December.
    2. Vikash Gautam & Rajendra Vaidya, 2014. "Growth and finance constraints in Indian manufacturing firms," Applied Financial Economics, Taylor & Francis Journals, vol. 24(1), pages 31-40, January.
    3. Pranab Kumar Das, 2014. "Finance Constraint and Firm Investment: A Survey of Econometric Methodology," Accounting and Finance Research, Sciedu Press, vol. 3(2), pages 138-138, May.
    4. 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.
    5. Vikash Gautam & Vikash Vaibhav, 2017. "Investment, Uncertainty and Credit Market Imperfection in India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(2), pages 265-289, June.

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