Financial constraints and corporate investment in Asian countries |
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Institution: | 1. University of Nottingham Ningbo, China;2. Southwestern University of Finance and Economics, China;3. University of Nottingham Ningbo China, Taikang East Road, Yinzhou, Ningbo, China;1. School of Accounting and Finance, University of Waterloo, 200 University Avenue West, Waterloo, ON, N2L 3G1, Canada;2. John Molson School of Business, Concordia University, 1450 Rue Guy, Montréal, QC H3H 0A1, Canada |
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Abstract: | This study overcomes the analytic shortcomings of the linear investment models and applies a Panel Smooth Transition Regression model to examine the investment ratios of 519 non-financial listed firms in six Asian countries over the period of 1991–2004. We find that investment-cash flow sensitivities vary across firms in the sample countries. Additionally, our findings also show that investment-cash flow sensitivity has also been affected by the business cycle in these countries. Furthermore, we find new evidence that tangible assets play a significant role in explaining the increase (decrease) in the investment-cash flow sensitivities for South and East Asian countries. These results imply that possession of the tangible assets increases debt capacity, which in turn reduces under-investment. These new findings have significant implications for financing and investment choices of the firms in the sample countries. |
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Keywords: | Investment Financial reforms Panel Smooth Transition model Asia |
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