148794 - Determinants and consequences of financial constraints.pdf (667.94 kB)
Determinants and consequences of financial constraints: a review of the empirical literature
We synthesise the empirical literature on the determinants and consequences of financial constraints in the disciplines of accounting and finance, critique the findings, and offer suggestions for future research. A prolonged run of financial constraints can eventually lead to corporate failure, because a company’s financial performance depends on its ease of access to external financing. Determinants of financial constraints encompass firm-level fundamental, macro-economic, and corporate governance variables, with an overwhelming majority of papers using the investment-cash flow sensitivity model for measuring financial constraints. We also review the empirical literature on the consequences of financial constraints. Financial constraints lead to higher cash holdings, less asymmetric cost behaviour, and fewer innovations. Constrained firms also use income-increasing accruals more aggressively than unconstrained firms do. Finally, financially constrained firms avoid taxes in order to produce temporary cash tax savings.
History
Publication title
China Accounting and Finance ReviewVolume
23Pagination
78-126ISSN
1029-807XDepartment/School
TSBEPublisher
Hong Kong Polytechnic UniversityPlace of publication
Hong KongRights statement
© The Author(s) 2021. This article is published with open access by The Hong Kong Polytechnic University. This article is distributed under the terms of the Creative Commons Attribution License which permits any use, distribution, and reproduction in any medium, provided the original author(s) and the source are creditedRepository Status
- Open