What happened to the willingness of companies to invest after the financial crisis? Evidence from Latin American Countries.

Aydin Ozkan, Roberto J. Santillán-Salgado, Yilmaz Yildiz, María del Rocío Vega Zavala

Research output: Contribution to journalArticle

Abstract

This paper investigates the changes in corporate investment dynamics in the aftermath of the Global Financial Crisis. Using firm-level data from six Latin American countries during the period 2002-2015, we show that firms are less constrained and have greater ability to invest after the crisis. However, the willingness of firms to invest optimally is reduced. This is supported by strong evidence that during the post-crisis period investment-cash flow sensitivity disappears; investment-q sensitivity increases; and the estimated speeds of adjustment for target investment decrease. Moreover, we show that after the crisis firms notably increase their efforts to attain optimal cash and leverage levels. Our analysis implies that firms may not always be willing to invest optimally. The willingness to invest optimally appears to be time-variant and moves together with the dynamics of cash and leverage policies, albeit in opposite directions.
Original languageEnglish
JournalJournal of Financial Research
Publication statusAccepted/In press - 29 Dec 2019

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Latin American countries
Willingness
Financial crisis
Cash
Leverage
Firm-level data
Investment-cash flow sensitivity
Speed of adjustment
Corporate investment
Global financial crisis

Cite this

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title = "What happened to the willingness of companies to invest after the financial crisis?: Evidence from Latin American Countries.",
abstract = "This paper investigates the changes in corporate investment dynamics in the aftermath of the Global Financial Crisis. Using firm-level data from six Latin American countries during the period 2002-2015, we show that firms are less constrained and have greater ability to invest after the crisis. However, the willingness of firms to invest optimally is reduced. This is supported by strong evidence that during the post-crisis period investment-cash flow sensitivity disappears; investment-q sensitivity increases; and the estimated speeds of adjustment for target investment decrease. Moreover, we show that after the crisis firms notably increase their efforts to attain optimal cash and leverage levels. Our analysis implies that firms may not always be willing to invest optimally. The willingness to invest optimally appears to be time-variant and moves together with the dynamics of cash and leverage policies, albeit in opposite directions.",
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What happened to the willingness of companies to invest after the financial crisis? Evidence from Latin American Countries. / Ozkan, Aydin; Santillán-Salgado, Roberto J. ; Yildiz, Yilmaz; Vega Zavala, María del Rocío.

In: Journal of Financial Research, 29.12.2019.

Research output: Contribution to journalArticle

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T1 - What happened to the willingness of companies to invest after the financial crisis?

T2 - Evidence from Latin American Countries.

AU - Ozkan, Aydin

AU - Santillán-Salgado, Roberto J.

AU - Yildiz, Yilmaz

AU - Vega Zavala, María del Rocío

PY - 2019/12/29

Y1 - 2019/12/29

N2 - This paper investigates the changes in corporate investment dynamics in the aftermath of the Global Financial Crisis. Using firm-level data from six Latin American countries during the period 2002-2015, we show that firms are less constrained and have greater ability to invest after the crisis. However, the willingness of firms to invest optimally is reduced. This is supported by strong evidence that during the post-crisis period investment-cash flow sensitivity disappears; investment-q sensitivity increases; and the estimated speeds of adjustment for target investment decrease. Moreover, we show that after the crisis firms notably increase their efforts to attain optimal cash and leverage levels. Our analysis implies that firms may not always be willing to invest optimally. The willingness to invest optimally appears to be time-variant and moves together with the dynamics of cash and leverage policies, albeit in opposite directions.

AB - This paper investigates the changes in corporate investment dynamics in the aftermath of the Global Financial Crisis. Using firm-level data from six Latin American countries during the period 2002-2015, we show that firms are less constrained and have greater ability to invest after the crisis. However, the willingness of firms to invest optimally is reduced. This is supported by strong evidence that during the post-crisis period investment-cash flow sensitivity disappears; investment-q sensitivity increases; and the estimated speeds of adjustment for target investment decrease. Moreover, we show that after the crisis firms notably increase their efforts to attain optimal cash and leverage levels. Our analysis implies that firms may not always be willing to invest optimally. The willingness to invest optimally appears to be time-variant and moves together with the dynamics of cash and leverage policies, albeit in opposite directions.

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