Determinants and Consequences of Financial Constraints: A Review of the Empirical Literature

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dc.citation.issue3
dc.citation.volume23
dc.contributor.authorHabib A
dc.contributor.authorCosta M
dc.contributor.authorJia J
dc.date.accessioned2025-04-08T02:05:33Z
dc.date.available2025-04-08T02:05:33Z
dc.date.issued2021-09-01
dc.description.abstractWe 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.
dc.description.confidentialfalse
dc.format.pagination78-126
dc.identifier.citationHabib A, Costa M, Jia J. (2021). Determinants and Consequences of Financial Constraints: A Review of the Empirical Literature. China Accounting and Finance Review. 23. 3. (pp. 78-126).
dc.identifier.eissn2307-3055
dc.identifier.elements-typejournal-article
dc.identifier.issn1029-807X
dc.identifier.urihttps://mro.massey.ac.nz/handle/10179/72738
dc.languageEnglish
dc.publisherThe Hong Kong Polytechnic University
dc.publisher.urihttps://www.polyu.edu.hk/af/-/media/department/af/list-of-issues/2021_3_3.pdf
dc.relation.isPartOfChina Accounting and Finance Review
dc.rights(c) 2021 The Author/s
dc.rightsCC BY 4.0
dc.rights.urihttps://creativecommons.org/licenses/by/4.0/
dc.subjectFinancial Constraints
dc.subjectInvestment-Cash Flow Sensitivity
dc.subjectCorporate Governance
dc.subjectFinancial Reporting
dc.subjectCash Holdings
dc.titleDeterminants and Consequences of Financial Constraints: A Review of the Empirical Literature
dc.typeJournal article
pubs.elements-id448261
pubs.organisational-groupOther
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