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A note on a semiparametric approach to estimating financing constraints in firms

Bhaumik, SK, Kumbhakar, SC and Sun, K 2014, 'A note on a semiparametric approach to estimating financing constraints in firms' , The European Journal of Finance .

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Abstract

In this paper, we present a novel approach to modeling financing constraints of firms. Specifically, we adopt an approach in which firm-level investment is a nonparametric function of some relevant firm characteristics, cash flow in particular. This enables us to generate firm-year specific measures of cash flow sensitivity of investment. We are therefore able to draw conclusions about financing constraints of individual firms as well as cohorts of firms without having to split our sample on an ad hoc basis. This is a significant improvement over the stylized approach that is based on comparison of point estimates of cash flow sensitivity of investment of the average firm of ad hoc sub-samples of firms. We use firm-level data from India to highlight the advantages of our approach. Our results suggest that the estimates generated by this approach are meaningful from an economic point of view and are consistent with the literature.

Item Type: Article
Schools: Schools > Salford Business School > Business and Management Research Centre
Journal or Publication Title: The European Journal of Finance
Publisher: Routledge
Refereed: Yes
ISSN: 1351-847X
Related URLs:
Funders: Non funded research
Depositing User: Dr Kai Sun
Date Deposited: 29 May 2015 17:43
Last Modified: 29 Oct 2015 00:46
URI: http://usir.salford.ac.uk/id/eprint/34560

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