Estimating cash flow sensitivity of external financing

Estimating cash flow sensitivity of external financing

To examine the relationship between external financing and cash flow under financial restrictions, researches have used different methods including ordinary least square, fixed effects, generalized method of moments, and instrumental variable approach. For example, Almeida & Campello (2010) and Gracia & Mira (2014) use ordinary least squares and generalized method of moments to measure the relation between external financing and cash flow. Frank & Goyal (2003) use panel regression approach to examine the external financing ) use generalized method of moments and ordinary least squares to study the empirical determinants of internal funds in the presence of financial constraints. We use fixed effects method to estimate Eq. (1). To take into account the problem of heteroskedasticity, we use robust standard errors.

We do so to get preliminary insight regarding the relationship between external financing and cash flow for firms included in our analysis

The extended versions of external financing models presented in Eqs. (2) and (3) are dynamic in nature as they include the lagged dependent variable into the specification. The presence of the lagged dependent variable, EXTERNAL_FINANCINGi, t ? 1, in the set of explanatory variables may give rise to the problem of autocorrelation in the residuals. Pokračovat ve čtení „Estimating cash flow sensitivity of external financing“