Financing Constraints, Earning Quality and Investment Efficiency: Evidence from Africa
Keywords:
Financial constraints, earning quality, investment efficiency, overinvestment, and underinvestment
Abstract
This study investigates the effect of financing constraints on investment efficiency in developing countries and how this relationship is conditional to the earning quality. We use the non-financial firms from 15 Africa countries from 2009 to 2018. We employed panel data analysis and classified the sample into a financially constrained and unconstrained firm to analyze this relationship. The results show that financing constraints affect investment efficiency; this effect is more pronounced in constrained firms than unconstrained firms. We evidenced that investment efficiency is more sensitive to cash flows for the financially constrained firm than the unconstrained firms. Our findings also posit that constrained firms are more likely to overinvest than unconstrained firms because of their internal cash flows. In contrast, unconstrained firms are more likely to under invest than constrained firms.
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2021-03-19
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