TY - JOUR
T1 - The sensitivity of investment to internal and external funds: New emerging market evidence
AU - Caglayan, Mustafa
AU - Machokoto, Michael
N1 - Funding Information:
This paper has benefited greatly from comments and suggestions by two anonymous reviewers, The Editor (John W. Goodell), Daniel Gymiah, Abongeh Tunyi, Anothny Kyiu and seminar participants at the University of the Witwatersrand.
Publisher Copyright:
© 2023 The Author(s)
PY - 2024/1
Y1 - 2024/1
N2 - Using a large panel of firm-level data from eight emerging African countries, we show that firms’ fixed investment expenditures are more sensitive to external funds, particularly debt, relative to internal funds. We further show that the investment sensitivity to external funds is associated with over-investment rather than financial constraints. This nexus remains strong through the financial crisis and after addressing measurement errors. Our study shows that the investment behavior of emerging market firms is influenced by the availability of internal and external funds and that the latter, whose role has received limited attention, is playing an ever-increasing role.
AB - Using a large panel of firm-level data from eight emerging African countries, we show that firms’ fixed investment expenditures are more sensitive to external funds, particularly debt, relative to internal funds. We further show that the investment sensitivity to external funds is associated with over-investment rather than financial constraints. This nexus remains strong through the financial crisis and after addressing measurement errors. Our study shows that the investment behavior of emerging market firms is influenced by the availability of internal and external funds and that the latter, whose role has received limited attention, is playing an ever-increasing role.
KW - Emerging markets
KW - Financial constraints
KW - Internal and external capital
UR - http://www.scopus.com/inward/record.url?scp=85171485510&partnerID=8YFLogxK
U2 - 10.1016/j.ribaf.2023.102099
DO - 10.1016/j.ribaf.2023.102099
M3 - Article
SN - 0275-5319
VL - 67
JO - Research in International Business and Finance
JF - Research in International Business and Finance
IS - Part B
M1 - 102099
ER -