The Effect of Financing Constraints on Corporate Investment: The SA-Index Approach

10 Pages Posted: 22 Jul 2021

See all articles by Novi Anri

Novi Anri

Universitas Indonesia

Zuliani Dalimunthe

Universitas Indonesia

Wasilah Wasilah

Universitas Indonesia - Faculty of Economics and Business

Date Written: May 30, 2021

Abstract

This study aims to analyze how the company's internal funds and investment opportunities impact the company’s investment decisions conditional to the financing constraints experienced. We classify companies into three categories based on the SA Index; low, neutral, and high-financing constraints. We analyze 278 non-financial companies listed on the Indonesia Stock.

Exchange during 2014-2018 using multiple regression methods. There is an indication that companies experiencing a financing constraint have a higher investment-cash flow sensitivity than companies with a low financing constraint. We found that internal funds and investment opportunities positively and significantly affect companies' investment with high financing constraints and companies with the neutral category. Meanwhile, we did not find a statistically significant relationship between independent variables - the internal fund and investment opportunity - and investment for companies with low financing constraints.

Keywords: Cash Flow, Company Investment, SA-Index, Investment-Cash Flow Sensitivity

JEL Classification: G32, G33, G34

Suggested Citation

Anri, Novi and Dalimunthe, Zuliani and Wasilah, Wasilah, The Effect of Financing Constraints on Corporate Investment: The SA-Index Approach (May 30, 2021). Available at SSRN: https://ssrn.com/abstract=3889855 or http://dx.doi.org/10.2139/ssrn.3889855

Novi Anri

Universitas Indonesia ( email )

Kampus Baru UI Depok
Jawa Barat, 16424
Indonesia

Zuliani Dalimunthe (Contact Author)

Universitas Indonesia ( email )

Indonesia

Wasilah Wasilah

Universitas Indonesia - Faculty of Economics and Business ( email )

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