Financial Constraints for Investment in Brazil

International Journal of Managerial Finance, Vol. 10 Iss: 1, pp.73 - 92, 2014

21 Pages Posted: 19 Mar 2013 Last revised: 25 Jan 2014

See all articles by Vicente Lima Crisóstomo

Vicente Lima Crisóstomo

Universidade Federal do Ceará

Félix J. López-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Eleuterio Vallelado

University of Valladolid; University of Valladolid

Date Written: March 19, 2013

Abstract

The purpose of this work is to verify the existence of financial constraints for investment in Brazil, an emerging market with growing international visibility. Using panel data methodology and GMM, we estimate dynamic investment models based on the Euler equation and Tobin’s q for a panel dataset of 199 Brazilian nonfinancial firms for the time period 1995-2006. Our findings show that Brazilian firms face financial constraints since their investment depend on internally generated funds. Results are robust to different investment models based on the Euler equation, while controlling for growth opportunities. Significant investment-cash flow sensitivity has been found for the whole sample of firms. Subsamples of firms considered as under financial constraints, according to dividend payout and equity issuance policies, have higher investment-cash flow sensitivity. Investment-cash flow sensitivity of financially constrained firms in Brazil is higher than that in the UK and in Romania, a transition economy. These results extend empirical evidence of financial constraints in Brazil.

Keywords: investment, financial constraints, cash flow, Brazil, emerging market

JEL Classification: G31, G32

Suggested Citation

Crisóstomo, Vicente Lima and Lopez-Iturriaga, Felix Javier and Vallelado, Eleuterio, Financial Constraints for Investment in Brazil (March 19, 2013). International Journal of Managerial Finance, Vol. 10 Iss: 1, pp.73 - 92, 2014. Available at SSRN: https://ssrn.com/abstract=2235632 or http://dx.doi.org/10.2139/ssrn.2235632

Vicente Lima Crisóstomo (Contact Author)

Universidade Federal do Ceará ( email )

Fortaleza
Brazil

HOME PAGE: http://www.ufc.br

Felix Javier Lopez-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

HOME PAGE: http://www2.eco.uva.es/flopez

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Eleuterio Vallelado

University of Valladolid ( email )

Avda. Valle Esgueva 6
47011 Valladolid, 47011
Spain
983423387 (Phone)
983186484 (Fax)

HOME PAGE: http://eleuteriovallelado.blogs.uva.es/

University of Valladolid ( email )

8 C/Plaza de Santa Cruz
Valladolid, Valladolid 47002
Spain
+34983423387 (Phone)

HOME PAGE: http://eleuteriovallelado.blogs.uva.es/

Register to save articles to
your library

Register

Paper statistics

Downloads
117
Abstract Views
1,132
rank
236,189
PlumX Metrics