Investment - Cash Flow Sensitivity and Financing Constraints: New Evidence from Indian Business Group Firms

George, Rejie; Kabir, Rezaul; Qian, Jing

Investment - Cash Flow Sensitivity and Financing Constraints: New Evidence from Indian Business Group Firms

Journal of Multinational Financial Management, Vol. 21, No. 2, 2011

42 Pages Posted: 16 Mar 2005 Last revised: 1 Aug 2012

See all articles by Rejie George

Rejie George

Indian Institute of Management Bangalore

Rezaul Kabir

University of Twente - Department of Finance and Accounting

Jing Qian

Tilburg University

Date Written: February 1, 2010

Abstract

A controversy exists on the use of the investment – cash flow sensitivity as a measure of financing constraints of firms. We re-examine this controversy by analyzing firms affiliated to Indian business groups. We find a strong investment – cash flow sensitivity for both group-affiliated and independent firms, but no significant difference in the sensitivity between them. Additional tests consistently demonstrate that investment – cash flow sensitivity of Indian group affiliated firms is not significantly lower relative to unaffiliated firms.

Keywords: investment, cash flows, business groups, financing constraints, India

JEL Classification: G30, G31, L20

Suggested Citation: Suggested Citation

George, Rejie and Kabir, Rezaul and Qian, Jing, Investment - Cash Flow Sensitivity and Financing Constraints: New Evidence from Indian Business Group Firms (February 1, 2010). Journal of Multinational Financial Management, Vol. 21, No. 2, 2011. Available at SSRN: https://ssrn.com/abstract=683725