Investment Cash Flow Sensitivity and Financial Constraint: A Cluster Analysis Approach

Posted: 8 Jun 2015

See all articles by Maurizio La Rocca

Maurizio La Rocca

Università degli Studi della Calabria

Raffaele Stagliano

Montpellier Business School

Tiziana La Rocca

University of Messina - Department of Economics

Alfio Cariola

Università degli Studi della Calabria

Date Written: March 2015

Abstract

This paper sheds light on the mixed empirical evidence concerning financial constraint and investment sensitivity to cash flow. The literature suggests that measuring financial constraint is far from straightforward, and we therefore propose a cluster analysis procedure to identify unambiguous groups of constrained firms. We found the investment results to be highly sensitive to cash flow for financial constraint firms. Moreover, in line with previous research, our results showed that the traditional criteria used to identify financially constrained firms led to ambiguous interpretations. Overall, our results propose that the cluster analysis can be used to encompass the various single-criterion approaches, thereby providing a finer measurement of the financial constraint construct and deeper insight into the relationship between investment sensitivity to cash flow and financial constraint.

Keywords: Investment cash flow sensitivity, investment, financial constraints, cluster analysis.

JEL Classification: G30, G31, G32

Suggested Citation

La Rocca, Maurizio and Stagliano, Raffaele and La Rocca, Tiziana and Cariola, Alfio, Investment Cash Flow Sensitivity and Financial Constraint: A Cluster Analysis Approach (March 2015). Applied Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2615534

Maurizio La Rocca (Contact Author)

Università degli Studi della Calabria ( email )

Ponte Bucci, Cubo 3C
Rende (Cosenza), Cosenza 87036
Italy

HOME PAGE: http://www.mauriziolarocca.it

Raffaele Stagliano

Montpellier Business School ( email )

2300, Avenue des Moulins
Montpellier, 34185
France

Tiziana La Rocca

University of Messina - Department of Economics ( email )

Via T. Cannizzaro 278
Messina, 98122
Italy

Alfio Cariola

Università degli Studi della Calabria ( email )

87036 Arcavacata di Rende CS
Italy

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