FINANCIAL DISTRESS OF COMPANIES AND CASH FLOW-INVESTMENT-SENSITIVITY: EVIDENCE FROM PANEL OF NON-FINANCIAL FIRMS

A. Haque, Ammar Abid, M. Qamar, S. Asif
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Abstract

This paper aims to investigate the effects of cash flow-investment sensitivity over firms facing varying levels of financial distress. For this purpose, cash flow, dividend policy, firm’s age, and size are used to create subsamples of firms facing different degrees of financial constraints. Using an unbalanced panel of 336 non-financial firms listed at Pakistan Stock Exchange over the period from 2006 to 2017, we provide evidence that the prevailing financial constraints affect the investment decisions of sample firms. Financial distress, as identified by cash flow, dividend policy and size of the firm, increases with the rise of cash flow-investment-sensitivity, thus substantiating the use of these measures as indicators of financial distress. Furthermore, evidence of the U-shaped investment curve is found when the sample is split on the basis of cash flow, suggesting a non-linear relation between cash flow and investment. The results shed light on the relation between financial and real cycle downturns suggesting the need for economic policies to be countercyclical with respect to financial and credit conditions.
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公司财务困境与现金流投资敏感性:来自非金融公司小组的证据
本文旨在探讨现金流投资敏感性对面临不同程度财务困境的企业的影响。为此,我们使用现金流量、股利政策、公司年龄和规模来创建面临不同程度财务约束的公司的子样本。利用2006年至2017年期间在巴基斯坦证券交易所上市的336家非金融公司的不平衡面板,我们提供了证据,表明普遍的财务约束影响样本公司的投资决策。由现金流、股利政策和公司规模确定的财务困境随着现金流投资敏感性的提高而增加,从而证实了这些措施作为财务困境指标的使用。此外,在现金流的基础上对样本进行拆分,发现了u型投资曲线的证据,表明现金流与投资之间存在非线性关系。研究结果揭示了金融和实际周期衰退之间的关系,表明经济政策需要在金融和信贷条件方面具有反周期性。
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