Much of the literature on investment-cash flow sensitivity examines only manufacturing firms, uses capital expenditure as a measure of investment, and uses operating cash flow as a measure of internal funds. Over the last several decades, due to outsourcing, the importance of manufacturing firms in the U.S. economy and the importance of capital expenditure as the primary type of investment have declined. The introduction of the Nasdaq exchange allowed smaller, less-profitable, and more human-capital intensive firms to become public, lowering the importance of operating cash flow as the primary source of internal funds. To take into account these trends, I introduce three innovations to the prior literature. (i) I include non-manufacturing firms. (ii) I broaden the definition of investment to include R&D and SG&A (which are both investments in human capital required at the innovation and marketing stages of the product life cycle), cash investment in subsidiaries and joint ventures, and the cash used to finance acquisitions. (iii) I broaden the definition of internal funds to include cash holding available at the beginning of the year. Empirically, non-manufacturing firms are more capital intensive than non-manufacturing firms, and hence excluding these firms could understate the true investment-cash flow sensitivity. Capital expenditure understates true investment, and hence excluding other forms of investment could also understate the true investment-cash flow sensitivity. Finally, operating cash flow understates true internal funds, and excluding cash holdings could overstate the true investment-cash flow sensitivity. The net effect of my proposed changes on the sensitivity is, therefore, an empirical issue. Overall, I document that investment is highly sensitive to cash flow––it is 570% higher than what I estimate using the definitions in prior literature––and this higher sensitivity is primarily caused by broadening the definition of investment. Further, though the sensitivity declines over time, the decline is modest and, importantly, the sensitivity is still economically and statistically significant in recent years. I identify three factors that have contributed to this decline: (i) the decline in Fed Funds rate (ii) changing firm characteristics and, (iii) changing firm composition. The changing characteristics and changing composition of firms are possibly due to macro trends such as outsourcing and the introduction of Nasdaq exchange. While outsourcing reduced firms’ capital expenditure, the introduction of the Nasdaq facilitated listing of less profitable and more human-capital intensive firms. Such firms are likely to invest more in R&D and SG&A and are less reliant on operating cash flow for their investment. These macro trends altered firms’ investment and cash flow mix, specifically decreasing the investment-cash flow ratio, which, in turn, contributed to the decrease in investment-cash flow sensitivity. / Business Administration/Finance

This paper examines how small high-tech start-ups in Sweden source their funding and aims to understand the underlying factors affecting these firms financing behaviour, contributing to the relatively limited field of research conducted in Europe. To fulfil the purpose of the study, a multiple case study method was implemented as the study’s research design. A literature review generated in a theoretical framework consisting of capital structure and specifically the pecking order theory. Together with our empirics, consisting of data from interviews with six different companies, the theoretical framework composed the basis for our analysis. The data from our sample displays that these firms initially source their funding through internal funds, suggesting that small high-tech start-up firms in Sweden rely heavily on their own saved funds or other personal resources available to them at the start-up face. Our findings suggests that these firms are limited in their financial options but also that independency and control is to be seen as factors to initially be funded through internal funds. Inconsistent with the pecking order theory, evidence in this paper finds that when looking for external funds, equity is the funding source rather than debt. Two conclusions can be drawn from this. First, the high-tech start-up firms seem to value the advisory of equity investor. Second, capital imperfections makes it hard to access debt. Furthermore, we find that majority of the case companies does not implement a capital structure policy since it seems to limited their financial options.

Em mercados de capitais perfeitos, a decisão de investimento de uma empresa pode ser considerada independente de sua decisão de financiamento, uma vez que recursos externos funcionam como um perfeito substituto para o capital interno. No entanto, em mercados de capitais com imperfeições, tais como custos de transação, custos de falência, problemas de assimetria de informações e problemas de agência, a disponibilidade de capital interno tende a influenciar a decisão de investimento. A insuficiência de recursos internos pode levar empresas a não aproveitarem boas oportunidades de investimento (subinvestimento) e o excesso pode incentivar administradores a investirem em projetos não lucrativos (superinvestimento). Em função de características operacionais, financeiras e administrativas, algumas empresas são mais sujeitas aos impactos de imperfeições de mercados e, por este motivo, seus investimentos devem ser mais sensíveis à geração interna de recursos. O objetivo deste estudo é investigar, no universo de empresas brasileiras de capital aberto, a sensibilidade do investimento em capital fixo - representado pela variação do imobilizado bruto - à geração interna de recursos - representada pelo fluxo de caixa operacional - bem como os fatores (características operacionais, financeiras e administrativas) que afetam essa sensibilidade. Foram considerados os seguintes fatores: tempo de negociação na bolsa de valores; tamanho da empresa; alavancagem financeira; percentual de ações em posse do(s) acionista(s) controlador(es); taxa de pagamento de dividendos e setor de atividade. A abordagem do estudo foi baseada em modelos de regressão múltipla. Dados em painel foram utilizados para estimar os coeficientes dos modelos. Na primeira parte do estudo, foi feita regressão do investimento sobre o fluxo de caixa e variáveis de controle. Na segunda parte do estudo, termos de interação entre o fluxo de caixa e os fatores corporativos foram introduzidos nos modelos. Os resultados da primeira parte deste estudo não mostraram evidências de que geração interna de recursos tem impacto sobre o investimento, sugerindo que nem todas as empresas preferem (ou dependem de) recursos internos para investir. Os resultados da segunda parte mostraram que, dependendo das características das empresas, a geração interna de recursos é bastante relevante para o investimento.Tamanho, alavancagem financeira e percentual de ações ordinárias em posse do(s) acionista(s) controlador(es) afetam a sensibilidade do investimento à geração interna de recursos. Quanto maior o tamanho da empresa, quanto maior sua alavancagem financeira e quanto maior o percentual de ações em posse do(s) acionista(s) controlador(es), menor será o impacto da geração interna de recursos sobre o investimento. Isso é coerente com a existência de custos de transação, custos de falência, assimetria de informações e problemas de agência. Os resultados relativos aos dois últimos fatores sugerem que o problema de superinvestimento é mais crítico que o de subinvestimento em empresas brasileiras de capital aberto. / In perfect capital markets, a firm´s investment decision can be considered independent from its financing decision, because external funds provide a perfect substitute for internal capital. However, in capital markets with imperfections, such as transaction costs, bankruptcy costs, information asymmetries and agency problems, the availability of internal capital tends to have an influence on investment decision. The shortage of internal funds may lead firms to pass up good investment opportunities (underinvestment) and the excess can encourage managers to invest in non-valuable projects (overinvestment). Due to operational, financial and managing features, some firms are more liable to the impacts of market imperfections than others and, for this reason, their investment should be more sensitive to internal funds generation. The aim of this study is to investigate, in the universe of brazilian public firms, the of fixed capital investment – represented by change in gross fixed assets – to internal funds generation – represented by cash flow from operations – as well as the corporate factors (operational, financial and managing features) that affect this sensitivity. The following factors were considered: length of time traded in the stock exchange market; firm size; financial leverage; percentage of common assets detained by controllers; dividend payment rate and industry. The study approach was based on multiple regression models. Panel data was used to estimate models coefficients. In the first part of the study, investment was regressed on cash flow and control variables. In the second part, interaction terms between cash flow and corporate factors were introduced in the models. The results of the first part of this study showed no evidence that internal funds generation has impact on investment, suggesting that not all firms prefer (or depend on) internal funds to invest. The results of the second part showed that, conditioned on firms features, internal funds generation is rather considerable for investment decision. Size, financial leverage and percentage of common assets detained by controllers affect investment sensitivity to internal funds generation. The larger the firm size, the larger its financial leverage and the larger the percentage of common assets detained by controllers, smaller will be the impact of internal funds generation on investment. This is consistent with the existence of transaction costs, bankruptcy costs, information asymmetries and agency problems. The results concerning the two latter factors suggest that the overinvestment problem is more serious than the underinvestment problem in brazilian public firms.

Em mercados de capitais perfeitos, a decisão de investimento de uma empresa pode ser considerada independente de sua decisão de financiamento, uma vez que recursos externos funcionam como um perfeito substituto para o capital interno. No entanto, em mercados de capitais com imperfeições, tais como custos de transação, custos de falência, problemas de assimetria de informações e problemas de agência, a disponibilidade de capital interno tende a influenciar a decisão de investimento. A insuficiência de recursos internos pode levar empresas a não aproveitarem boas oportunidades de investimento (subinvestimento) e o excesso pode incentivar administradores a investirem em projetos não lucrativos (superinvestimento). Em função de características operacionais, financeiras e administrativas, algumas empresas são mais sujeitas aos impactos de imperfeições de mercados e, por este motivo, seus investimentos devem ser mais sensíveis à geração interna de recursos. O objetivo deste estudo é investigar, no universo de empresas brasileiras de capital aberto, a sensibilidade do investimento em capital fixo - representado pela variação do imobilizado bruto - à geração interna de recursos - representada pelo fluxo de caixa operacional - bem como os fatores (características operacionais, financeiras e administrativas) que afetam essa sensibilidade. Foram considerados os seguintes fatores: tempo de negociação na bolsa de valores; tamanho da empresa; alavancagem financeira; percentual de ações em posse do(s) acionista(s) controlador(es); taxa de pagamento de dividendos e setor de atividade. A abordagem do estudo foi baseada em modelos de regressão múltipla. Dados em painel foram utilizados para estimar os coeficientes dos modelos. Na primeira parte do estudo, foi feita regressão do investimento sobre o fluxo de caixa e variáveis de controle. Na segunda parte do estudo, termos de interação entre o fluxo de caixa e os fatores corporativos foram introduzidos nos modelos. Os resultados da primeira parte deste estudo não mostraram evidências de que geração interna de recursos tem impacto sobre o investimento, sugerindo que nem todas as empresas preferem (ou dependem de) recursos internos para investir. Os resultados da segunda parte mostraram que, dependendo das características das empresas, a geração interna de recursos é bastante relevante para o investimento.Tamanho, alavancagem financeira e percentual de ações ordinárias em posse do(s) acionista(s) controlador(es) afetam a sensibilidade do investimento à geração interna de recursos. Quanto maior o tamanho da empresa, quanto maior sua alavancagem financeira e quanto maior o percentual de ações em posse do(s) acionista(s) controlador(es), menor será o impacto da geração interna de recursos sobre o investimento. Isso é coerente com a existência de custos de transação, custos de falência, assimetria de informações e problemas de agência. Os resultados relativos aos dois últimos fatores sugerem que o problema de superinvestimento é mais crítico que o de subinvestimento em empresas brasileiras de capital aberto. / In perfect capital markets, a firm´s investment decision can be considered independent from its financing decision, because external funds provide a perfect substitute for internal capital. However, in capital markets with imperfections, such as transaction costs, bankruptcy costs, information asymmetries and agency problems, the availability of internal capital tends to have an influence on investment decision. The shortage of internal funds may lead firms to pass up good investment opportunities (underinvestment) and the excess can encourage managers to invest in non-valuable projects (overinvestment). Due to operational, financial and managing features, some firms are more liable to the impacts of market imperfections than others and, for this reason, their investment should be more sensitive to internal funds generation. The aim of this study is to investigate, in the universe of brazilian public firms, the of fixed capital investment – represented by change in gross fixed assets – to internal funds generation – represented by cash flow from operations – as well as the corporate factors (operational, financial and managing features) that affect this sensitivity. The following factors were considered: length of time traded in the stock exchange market; firm size; financial leverage; percentage of common assets detained by controllers; dividend payment rate and industry. The study approach was based on multiple regression models. Panel data was used to estimate models coefficients. In the first part of the study, investment was regressed on cash flow and control variables. In the second part, interaction terms between cash flow and corporate factors were introduced in the models. The results of the first part of this study showed no evidence that internal funds generation has impact on investment, suggesting that not all firms prefer (or depend on) internal funds to invest. The results of the second part showed that, conditioned on firms features, internal funds generation is rather considerable for investment decision. Size, financial leverage and percentage of common assets detained by controllers affect investment sensitivity to internal funds generation. The larger the firm size, the larger its financial leverage and the larger the percentage of common assets detained by controllers, smaller will be the impact of internal funds generation on investment. This is consistent with the existence of transaction costs, bankruptcy costs, information asymmetries and agency problems. The results concerning the two latter factors suggest that the overinvestment problem is more serious than the underinvestment problem in brazilian public firms.

This study investigates the source of financing in Austrian tech startups and aims to identify the main factors that affect the decision making of these firms. In doing so, we aim to contribute to the relatively limited field of research conducted in Europe. In order to achieve the purpose of this study, we implemented a multiple case study method as the research design. For the purpose of this study, a literature review was used that generated a theoretical framework. This framework focuses on capital structure with the main emphasis being on the pecking order theory. Additionally, government financial support is included as a  secondary priority. Together with the theoretical framework, our empirical findings i.e. data from the interviews with six companies, one email response, and two additional secondary data from an Austrian startup publication comprised the basis for our analysis.   Our findings from the sample companies used in this study show that Austrian tech startups use internal funding as an initial source of financing their new venture. When it comes to the order of funding, our findings show that most of the startups used in this study utilized equity as a second source of financing after internal funding and before debt. However, when it comes to the preference of the founders, half preferred a financing order that is inline with the pecking order theory while the remaining half preferred otherwise choosing equity to debt.   From this, three conclusions can be drawn. First, the limited funding options available affect the decision making and preference of the tech startups. Second, founders value the nonfinancial added value they can get from investors both when implementing and preferring a financing option. Third, the future growth potential and the long term strategy of the startups and their founders play a crucial role in the funding option they prefer to finance their venture.   Additionally, when it comes to capital structure, we see that most Austrian tech startups used in this study do not have a set policy. When it comes to Government financial support (GFS), we see that financial support from the government plays a significant role in Austrian tech startup financing.

This thesis studies how firms’ investment and credit are affected by different financial imperfections related to firm and bank learning, relationship lending and financial wealth. After reviewing in chapter 2 the related literature, in chapter 3 I investigate the main determinants of different types of financial constraints, such as credit rationing and excessive cost of debt, by constructing new measures of these problems based on qualitative data. I then develop in chapter 4 a model of firm investment with financial constraints and Bayesian learning that provides a new framework to analyze the problem of asymmetric learning between a bank and a firm and its effect on a firm’s investment decision. This model is used to investigate, theoretically and empirically, the relationship between firms’ investment and internal funds in the presence of limited information, learning and bankruptcy costs, providing new arguments to support a ushaped curve theory of investment and internal funds. Finally, in chapter 5 this model is used to analyze how relationship lending affects the evolution of interest rates during the life cycle of firms. / Esta tesis estudia cómo la inversión y el crédito están afectados por diferentes imperfecciones financieras relacionadas con el aprendizaje, las relaciones de crédito y la riqueza financiera. Luego de revisar la literatura relacionada, en el Capítulo 3 se investiga los principales determinantes de distintas restricciones financieras relacionadas con el acceso y las condiciones del crédito, mediante la construcción de nuevos indicadores de estos problemas. Luego, en el Capítulo 4 se desarrolla un modelo de inversión con restricciones financieras y aprendizaje Bayesiano que provee un nuevo marco para analizar el problema del aprendizaje asimétrico entre un banco y una firma y su efecto en las decisiones de inversión de esta última. Dicho modelo es utilizado para investigar de forma teórica y empírica la relación entre la inversión y los recursos propios en la presencia de información asimétrica, aprendizaje y costes de quiebra, obteniendo nuevos argumentos para apoyar la teoría de una relación en forma de U entre la inversión y los recursos propios. Finalmente, en el Capítulo 5 se estudia como una relación de crédito afecta la evolución de los tipos de interés durante el ciclo de vida de las firmas.