Investment-Cash Flow Sensitivity and Financial Constraints: Evidence from Unquoted European SMEs

46 Pages Posted: 17 Mar 2018

See all articles by Klaas Mulier

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics

Bruno Merlevede

Ghent University - Department of General Economics

Date Written: 2016

Abstract

We contribute to the financial constraints literature and the investment-cash flow sensitivity debate by defining a new and simple index of firm level financial constraints for unquoted European SMEs. Firms that are constrained according to our index pay higher interest rates on their debt. An exogenous financial supply shock reveals that our index also captures financial constraints in terms of the volume of credit. Our index outperforms existing indices in capturing financial constraints of unquoted SMEs. Finally, employing our proposed index to identify financially constrained firms and using firm-level employment growth as a control for investment opportunities, we find that constrained firms display the highest investment-cash flow sensitivities.

Suggested Citation

Mulier, Klaas and Schoors, Koen J. L. and Merlevede, Bruno, Investment-Cash Flow Sensitivity and Financial Constraints: Evidence from Unquoted European SMEs (2016). Journal of Banking and Finance, Vol. 73, 2016. Available at SSRN: https://ssrn.com/abstract=3140273

Klaas Mulier (Contact Author)

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 265 35 99 (Fax)

Ghent University - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 264 35 99 (Fax)

Bruno Merlevede

Ghent University - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
58
Abstract Views
233
rank
380,919
PlumX Metrics