{"title":"Do debt payments beget debt? Evidence from an emerging market","authors":"Vishnu K. Ramesh , Aravind Sampath","doi":"10.1016/j.iimb.2023.05.001","DOIUrl":null,"url":null,"abstract":"<div><p>Do firms generate financial flexibility by retiring debt? Using Indian data, we document that firms channel approximately 39% of current cash flow to repay debt. This higher debt-cash flow sensitivity facilitates firms to maintain investment in the future. Firms prioritise reducing dependency on external finance, increasing investments, and saving cash in the short run. In the long run, firms enhance investments primarily through borrowing. Unlike in developed markets, we find that Indian firms respond symmetrically to positive and negative cash flow shocks by changing their borrowing.</p></div>","PeriodicalId":46337,"journal":{"name":"IIMB Management Review","volume":"35 2","pages":"Pages 124-136"},"PeriodicalIF":1.7000,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"IIMB Management Review","FirstCategoryId":"1085","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0970389623000368","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"MANAGEMENT","Score":null,"Total":0}
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Abstract
Do firms generate financial flexibility by retiring debt? Using Indian data, we document that firms channel approximately 39% of current cash flow to repay debt. This higher debt-cash flow sensitivity facilitates firms to maintain investment in the future. Firms prioritise reducing dependency on external finance, increasing investments, and saving cash in the short run. In the long run, firms enhance investments primarily through borrowing. Unlike in developed markets, we find that Indian firms respond symmetrically to positive and negative cash flow shocks by changing their borrowing.
期刊介绍：
IIMB Management Review (IMR) is a quarterly journal brought out by the Indian Institute of Management Bangalore. Addressed to management practitioners, researchers and academics, IMR aims to engage rigorously with practices, concepts and ideas in the field of management, with an emphasis on providing managerial insights, in a reader friendly format. To this end IMR invites manuscripts that provide novel managerial insights in any of the core business functions. The manuscript should be rigorous, that is, the findings should be supported by either empirical data or a well-justified theoretical model, and well written. While these two requirements are necessary for acceptance, they do not guarantee acceptance. The sole criterion for publication is contribution to the extant management literature.Although all manuscripts are welcome, our special emphasis is on papers that focus on emerging economies throughout the world. Such papers may either improve our understanding of markets in such economies through novel analyses or build models by taking into account the special characteristics of such economies to provide guidance to managers.
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