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
Date Written: March 19, 2013
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
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