Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.

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Impact of Cash flow on Investment levels in quoted Nigerian Manufacturing Firms.

,usa Inuwa Fodio -e"art.ent of Accounting( /ni0ersit1 of A2u3a !.2 11%( A2u3a 4-.ail5 .fodio2))161ahoo.co. Ruth Ifean1i &nah &ffice of the Accountant 7eneral of the Federation( A2u3a 'ictor 8hiedu &2a 8orres"onding Author# -octoral Student( -e"art.ent of Accounting( Nasarawa State /ni0ersit1 !.2 1)22( 9effi 4-.ail5 o2a1+661ahoo.co. Abstract :his stud1 e;a.ines the effect of cash flow on in0est.ent le0els of <uoted .anufacturing fir.s in Nigeria. :he o23ecti0e is to identif1 if in0est.ent is sensiti0e to internall1 generated cash flow. :he assess.ent co0ers the in0est.ent le0els of 16 listed fir.s o0er the "eriod 2))%-2))$. :he &=S results of the stud1 show a significant "ositi0e relationshi" 2etween in0est.ent and cash flow( suggesting that in0est.ent is affected 21 the a0aila2ilit1 of internal finance. :he stud1 esta2lished that fir. si>e te;t has significant negati0e effect on cash flowin0est.ent relationshi". :he results also show that the industrial classification ha0e 0ar1ing effect on cash flowin0est.ent relationshi". ?hile che.ical and "aints and 2uilding .aterials ha0e "ositi0e effect on in0est.entcash flow relationshi"( conglo.erates( food( 2e0erages and to2acco ha0e negati0e effect on the relationshi" 2etween internall1 generated funds and in0est.ent. @owe0er( onl1 che.ical and "aints had a significant "ositi0e effect on the cash flow-in0est.ent ne;us. :hus( the stud1 esta2lishes a.ong others that in0est.ent le0els of fir.s can 2e affected 21 the a0aila2ilit1 of internal finance and industr1 t1"e and that a .isalign.ent of in0est.ent with internal A characteristic factors can 2e detri.ental. Keywords 8ash flow( In0est.ent( Industr1 !. Introduction Fir.s are .ore liBel1 to stu.2le 2ecause of a lacB of in0est.ent ideas and o""ortunities than 2ecause of "oor .ethods of a""raisal. An in0est.ent is the current co..it.ent of funds for a "eriod of ti.e to deri0e a future flow of funds that will co."ensate the in0esting unit for the ti.e the funds are co..itted( for e;"ected rate of inflation( and also for the uncertaint1 in0ol0ed in the future flow of funds FranB and 9ell1( 19$2#. According to SarBis 19$*#( in0est.ent is the co..it.ent of funds with the e;"ectation of a "ositi0e return co..ensurate with the le0el of risB assu.ed. &ne co..on thread with the se0eral definitions of in0est.ent is the co..it.ent of funds. :he a0aila2ilit1 of finance is one of the .ost i."ortant factors that constrain a fir.Cs in0est.ent 8larBe et al( 1992#. ?hether fir.s can secure the funds the1 need to undertaBe their "rofita2le in0est.ent is an i."ortant consideration for growth. Such funds could 2e e;ternall1 or internall1 generated. Funds could 2e generated e;ternall1 0ia e<uit1 or de2t financing. In real life( the ca"ital .arBet is not "erfect due to the "resence of infor.ation as1..etries. As a result( econo.ic agents are not e<uall1 well infor.edD conse<uentl1( outside in0estors will asB for a "re.iu. to "urchase a fir.Cs e<uit1. !ros"ecti0e in0estors are onl1 willing to "urchase shares in the fir. e;ce"t at a reduced "rice Schiantarelli( 1996#. &liner and Rude2usch 1996# argue that this conflict of interest increases the cost of e;ternal finance. &n the other hand( due to infor.ation as1..etries in de2t financing( lenders .a1 onl1 fulfill a "art of 2orrowersC re<uire.ents for loans. Such credit rationing is done to .itigate risBs and inherent infor.ation as1..etries. As such( fir.s 2eco.e less accessi2le to e;ternal funds. In this light( "rofits gained fro. "re0ious in0est.ents would ha0e to 2e retained in order to s.ooth future in0est.ent acti0ities. As a result( in0est.ents 2eco.e 0er1 sensiti0e to a0aila2ilit1 of internal funds flow since internal funds .a1 2e less costl1 than e;ternal funds due to financing constraints#. !resentl1( accounting researchers at the local le0el ha0e not .ade an1 significant contri2ution to the de2ate on whether cash flow has effect on in0est.ent of fir.s. Finance literature in ad0anced econo.ies liBe A.erica and 4uro"e tend to de.onstrate e0idence of the i."act of cash flow on cor"orate in0est.ent. :hese econo.ies ha0e 0ia2le in0est.ent cli.ates and 0i2rant stocB .arBets. @owe0er( the econo.1 of African countries and Nigeria in "articular significantl1 differs fro. ad0anced countries. :he ca"ital .arBets are al.ost in a state of disre"air and are at contrast to that found in the A.erica and 4uro"e. Nigeria .aBes a good case for e;a.ining the i."act of cash flow on in0est.ent. First and fore.ost( e."irical studies indicate that the Nigerian ca"ital .arBet is i."erfect &ludo1i( 1999D Adelegan( 2))6#. Second( access to credit has 2een ascertained as the .ost critical "ro2le. facing the countr1 ?orld EanB( 2))7#. :his is associated with credit and ca"ital rationing cou"led with

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.12( 2)1*

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discri.ination in the credit .arBet. !otential sa0ers would de.and high-risB "re.iu.s as co."ensation fro. 2orrowers with low net worth who are usuall1 regarded as high credit risBs. According to Inanga 1999#( the cost of e;ternal finance to such 2orrowers co."els the. to fall 2acB on internal finance to fund in0est.ents. :his stud1 is "oised at unfolding the i."act of cash flow as an internall1 generated source of funding to in0est.ent o""ortunities in Nigerian fir.s. :he results of the stud1 would 2e far- reaching and instructi0e. It will 2e useful for "olic1 .aBers to ascertain the effects of financial constraints on fir.sC in0est.ent. It would as well "ro0ide useful infor.ation to .anage.ent on issues of li<uidit1( financial fle;i2ilit1 and "resent cash flow le0els as "ossi2le earl1 warning signal to the health of o"erating fir.s. ". #eview of $rior %iterature and &ypotheses 'evelopment An issue that is argua2l1 the central issue in cor"orate finance is the interaction 2etween in0est.ent and internall1 generated cash flow =ewellen and =ewellen( 2)1*#. In a strictl1 neoclassical world( cash flow does not 2elong in an in0est.ent e<uation. @owe0er( e."irical studies ha0e in0aria2l1 significantl1 associated cash flow to in0est.entD though 2oth the strength of the relationshi" and its cause are the su23ect of .uch de2ate. :he relationshi" 2etween in0est.ent and cash flow has had a tur2ulent histor1. According to 8ar"enter and 7uariglia 2))*#( the inter"retation of the correlation 2etween cash flow and in0est.ent is highl1 contro0ersial. So.e ha0e argued that it is as a result of financial constraints( others 21 the correlation 2etween cash flow and in0est.ent o""ortunities that are not "ro"erl1 .easured 21 :o2inCs F. :he use of F is 2ased on the idea that in0est.ent o""ortunities( which are forward looBing( can 2e ca"tured 21 e<uit1 .arBet "artici"ants who are also forward looBing. :he F theor1 is a theor1 of in0est.ent 2eha0ior de0elo"ed 21 the /.S econo.ist Ja.es :o2in in 1969. :he theor1 co..onl1 referred to as the :o2inCs < theor1 "ur"orts to relate the .arBet 0alue of shares issued 21 a co."an1 to the re"lace.ent costs associated with the co."an1Cs assets. :he higher F is( the chea"er it should 2e for fir.s to raise funds 21( sa1( issuing e<uit1( and thus the less i."ortant cash flow should 2e as a constraint on in0est.ent A2el and &li0ier( 19$6#. :he theor1 e;"lains the o2ser0ed trends in in0est.ent. :o2in 1969# reasoned that fir.s would accu.ulate .ore ca"ital when F G 1 and should draw down their ca"ital stocB when FH 1. In other words( net in0est.ent in "h1sical ca"ital would de"end on where F is in relation to one. :he /.S econo.ist in his F theor1 argued that once .easured( F should 2e a sufficient statistic for in0est.ent. Se0eral studies that ha0e focused on the "redictors of in0est.ent ha0e utili>ed :o2inCs F as "ro;1 for in0est.ent o""ortunities of a fir. 7ugler( ,ueller and Iurtoglen( 1997#. 8ar"enter and 7uariglia 2))*# regress in0est.ent on F and cash flow and find that although cash flow affects in0est.ents of 2oth large and s.all fir.s( its effect is stronger for s.all fir.s. -e0ereu; and Schiantarelli 199)# used an e;"anded 0ersion of the < .odel used 21 Fa>>ari( @u22ard and !etersen 19$$# wherein the1 incor"orated a cost of de2t increasing in the le0el of de2t. :heir .ain finding was that cash flow is "articularl1 i."ortant for s.aller and infant fir.s. Eond et al 2))*# "resent e0idence that the in0est.ent of /.9 fir.s is .ore sensiti0e to cash flow fluctuations than the in0est.ent of fir.s in the continental 4uro"ean countries. :heir results are 2ased on esti.ates of in0est.ent e<uations for four 4uro"ean countries Eelgiu.( France( 7er.an1 and /.9#. Fa>>ari et al 19$$# found that cash flow tends to ha0e a 2igger effect on the in0est.ent of fir.s .ore liBel1 to face financial constraints and inter"reted this as e0idence for the e;istence of infor.ation-dri0en ca"ital .arBet i."erfections. 9a"lan and Jingales 199+# are "erha"s the 2est Bnown criti<ue of the cash flow constraint argu.ents. In their stud1 which in0estigated the sa.e fir.s identified in Fa>>ari et al 19$$# found that onl1 a s.all "ercentage of these fir.s had difficult1 financing their in0est.ent whether fro. internal or e;ternal sources. In 2))1( a stud1 21 Alla1anis and ,u>u.dar 2))1# showed that negati0e cash flow o2ser0ations .a1 ha0e a distortionar1 i."act on esti.ated in0est.ent Kcash flow sensiti0ities. :he1 o2ser0ed that when fir.s incur cash losses( in0est.ents are down to their lowest "ossi2le le0els and in0est.ent-cash flow sensiti0it1 2eco.es e;tre.el1 low. 7ugler et al 1997# esti.ate in0est.ent using a .easure of .arginal F while e;a.ining the "ossi2le relationshi" 2etween cash flow and in0est.ent. In a related stud1 in :rinidad and :o2ago( ,atthias and I2rahi. 2))*# while e;a.ining the i."act of cash flow on cor"orate in0est.ent docu.ented a strong "ositi0e relationshi" 2etween in0est.ent and internall1 generated funds cash flow# which suggest that the financial and real decisions of listed fir.s are not inde"endent. :his stud1 seeBs to clarif1 the role of cash flow on in0est.ent o""ortunities. ?e utili>e F as "ro;1 for e;"ectations reflecting the fir.Cs insidersC e0aluation of o""ortunities and future new in0est.ent "ro3ects. :hus( the following h1"othesis is stated in null for.5 @1 K 8ash flow has no significant effect on the in0est.ent le0els of <uoted .anufacturing fir.s in Nigeria. Fir.sC si>e has 2een used as an indicator of access to e;ternal finance 7ertler and 7ilchrist( 199%#. ,i>en and 'er.eulen 2))+# argue that s.all fir.s ha0e less collateral .aBing the. less liBel1 to attract e;ternal finance. As such these fir.s tend to rel1 .ostl1 on internall1 generated funds. According to Schaller 199*#( s.all fir.s and those that do not 2elong to a cor"orate grou" in 8anada are .ore sensiti0e to cash flow than others. In their se.inal stud1( Fa>>ari et al 19$$# "oint out that when the1 s"lit sa."les according to si>e( s.all fir.s ha0e

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.12( 2)1*

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relati0el1 low cash flow coefficients. 8hatelain et al 2))*# in a cross countr1 stud1 of 7er.an1( France( Ital1 and S"ain find a significant larger effect of cash flow on in0est.ent for s.aller fir.s onl1 in the Italian case. :his stud1 h1"othesi>es in null for. that5 @2 K Fir. si>e has no significant effect on the cash flow- in0est.ent relationshi" of <uoted .anufacturing fir.s in Nigeria. A new literature has e.erged( .aBing use of industrial characteristics to deter.ine whether these features are res"onsi2le for changes in the cash flow K in0est.ent sensiti0it1. -edola and =i""i 2))+# ha0e in their stud1 shown that industries with characteristics such as greater in0est.ent intensit1 are .ore liBel1 to show greater sensiti0it1 of changing cash flow le0els 2ecause their Lcost sideC is .ore sensiti0e to the real cost of ca"ital. Earth and Ra.e1 2)))# ha0e linBed the differential effects of cash flow fluctuations arising fro. .onetar1 "olic1 shocBs to the i."act of LcostC and Lde.and influences which are connected to the e;"osure of "articular t1"es of industries to these influences. :his stud1 thus h1"othesi>es in null for. that5 @* K Industrial structure has no significant effect on the cash flow-in0est.ent relationshi" of <uoted .anufacturing fir.s in Nigeria. (. Methodology *.1 !o"ulation and Sa."ling :his stud1 focuses e;clusi0el1 on selected .anufacturing fir.s within the four .a3or industr1 grou"s as classified 21 the Nigerian StocB 4;change and the 8or"orate Affairs 8o..ission. A filter is e."lo1ed to sie0e stud1 fir.s. :hese fir.s .ust ha0e filed their annual re"orts within the last ten 1ears to 2e selected. In addition( the co."anies .ust ha0e all the accounting and .arBet data re<uired for the stud1 "eriod 2))%-2))$. :hese restrictions "lace a li.it on the nu.2er of fir.s <ualif1ing for in0estigations. :hus the data set co0ers 16 .anufacturing fir.s fro. the Foods( 2e0erages and :o2acco( Euilding .aterials( 8he.icals and !aints and 8onglo.erates. ,anufacturing fir.s are the focus of this stud1 2ecause of their i."ortance in the growth and de0elo".ent of the Nigerian econo.1 and also 2ecause of their aggressi0e in0est.ent c1cles and de"endenc1 on internall1 generated re0enues. *.2 -ata Source -ata is o2tained .ainl1 fro. annual re"orts and accounts of sa."le co."anies for the "eriod 2))% to 2))$. ,arBet "rices are also e;tracted fro. dail1 official listing of Nigeria StocB 4;change. *.* ,odel S"ecification ?e utili>e the ordinar1 least s<uare &=S# .ethod of .ulti"le regressions in testing the relationshi" that e;ists 2etween cash flow and in0est.ent acti0ities. :he following s"ecification is e."lo1ed5 :Fit M 2) N 218Fit N /it OOOOOOOOOOO. 1# ?here :Fit M :o2inCs F A "ro;1 for le0el of in0est.ent for fir. i at ti.e t# 8Fit M cash flow for fir. i at ti.e t /it M error ter.. :o control for the effect of Si>e( a fir. si>e 0aria2le is introduced as follows5 :Fit M 2) N 218Fit N 22FSit N /it OOOOOOOO. 2# ?here :F and 8F re.ain in definition as in e<uation 1 FS M Fir. Si>e Industrial structure is also incor"orated into the .odel in a third e<uation as follows5 :Fit M 2) N 218Fit N 22IN-it N /it OOOOOOO.. *# ?here :F and 8F re.ain in definition as in e<uation 1 IN- M Industrial StructureA 8lassification. *.% ,easure.ent of 'aria2les :o2inCs F is .easured along the line of 9oo and ,aeng 2))+# as the ratio of 2ooB 0alue of total de2t and .arBet ca"itali>ation to re"lace.ent cost of total assets. 8ash flow is .easured as o"erating inco.e "lus de"reciation. ?e .easure cash flow as o"erating inco.e rather than net inco.e 2ecause net inco.e includes e;traordinar1 inco.e co."onents unrelated to usual o"erations and is se0erel1 su23ect to .ani"ulation in Nigeria. Fir. Si>e is ca"tured as the natural logarith. of total assets of the fir.. ?e use the logarith. 2ecause of the widel1 0aried 0alues of assets and in a 2id to .itigate heteroscedasticit1. :his stud1 ca"tures industrial structureA classification as a du..1 0aria2le which assu.es the 0alue of one 1# for the industr1 under consideration and >ero )# for the re.aining industries. ). #esults and 'iscussion /sing the Statistical !acBage for Social Sciences S!SS# 'ersion 16.)( the regression results of the relationshi"

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.12( 2)1*

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2etween cash flow and in0est.ent of sa."le fir.s e<uation 1# is as shown 2elow5 :a2le 1 ,odel Su..ar1 ,odel R R s<uare Ad3usted R S<uare Std. error of the esti.ate 1 .916a .$*$ .$*6 %2*.17+6$ a. !redictors5 constant#( 8ash flow 2. -e"endent 0aria2le5 :o2inCs F :a2le 2 Ano0a 2 ,odel Su. of s<uares df 7.2*%47 1 Residual 1.*9747 7$ :otal $.6*147 79 a. !redictors5 constant#( 8ash flow 2. -e"endent 0aria2le5 :o2inCs F

,ean s<uare 7.2*%47 179)77.6+$

F %)*.9+7

Sig .)))a

:a2le * 8oefficients /nstandardi>ed coefficients Standardi>ed coefficients E Std.error Eeta t Sig constant# 9).9+* %9.)77 1.$+* .)6$ 8ash flow .))* .))) .916 2).)99 .))) a. -e"endent 0aria2le5 :o2inCs F :he coefficient of deter.ination is ).$%. In other words( $%P of the changes in in0est.ent le0el :o2inCs F# are e;"lained 21 the regression "lane. :he .odel is well-fitted. :he F statistic was found to 2e significant at 1P le0el. :a2le * shows that cash flow has a "ositi0e significant i."act on in0est.ent le0els of stud1 fir.s. :his result "ro0ides e0idence for the re3ection of h1"othesis that cash flow has no significant effect on the in0est.ent of <uoted .anufacturing fir.s in Nigeria. In other words( the higher the cash flow( the higher the in0est.ent le0el of the fir.. &ur result corro2orate the findings of 9a"lan and Jingales 199+#( =a.ont 1997# and Schnure 2)))# who docu.ent a strong "ositi0e relation 2etween cash flow and in0est.ent. @owe0er( our findings contra0ene those of Alla1anis and ,u>u.da 2))1# who found a negati0e relation 2etween in0est.ent le0els and cash flow. Regression results of the second e<uation which e;a.ines the effect of fir. si>e on the cash flow Kin0est.ent relationshi" are as follows5 :a2les %( + and 6 show the regression results of the relationshi" 2etween cash flow and in0est.ent after controlling for the effect of fir. si>e. :a2le % ,odel Su..ar1 ,odel R R s<uare Ad3usted R S<uare 1 .9*2a .$69 .$66 a. !redictors5 constant#( 8ash flow( Fir. Si>e 2. -e"endent 0aria2le5 :o2inCs F :a2le + Ano0a 2 ,odel Su. of s<uares df ,ean s<uare 7.+)247 2 *.7+147 Residual 1.12947 77 1%662+.667 :otal $.6*147 79 a. !redictors5 constant#( 8ash flow( Fir. Si>e 2. -e"endent 0aria2le5 :o2inCs F

Std. error of the esti.ate *$2.917*1

F 2++.$1*

Sig .)))a

:a2le 6 8oeffficients /nstandardi>ed coefficients Standardi>ed coefficients E Std.error Eeta t constant# 1))*.6$% 21$.1%% %.6)1 8ash flow .))* .))) .92* 22.*66 Fir. Si>e -2%2.22$ +6.6$) -.176 -%.27% a. -e"endent 0aria2le5 :o2inCs F Results show a strong negati0e relationshi" 2etween in0est.ent and fir. si>e while cash flow effect statisticall1 and negati0el1 significant at 1P le0el in line with the "rior e;"ectation#. :hese results

Sig .))) .))) .))) re.ains "ro0ide

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.12( 2)1*

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e0idence for the re3ection of the second null h1"othesis that fir. si>e has no significant effect on the cash flowin0est.ent relationshi" of stud1 fir.s. :he "ro"ortion of the total 0ariation in fir.Cs in0est.ent e;"lained 21 the regression "lane as re"orted in :a2le %. !recisel1( the coefficient of deter.ination is a2out $7P which is an i."ro0e.ent on the first .odel. :he .odel is well fitted and its o0erall significance is guaranteed 21 the significant F statistic at 1P le0el. I."lications of the negati0e relationshi" 2etween :o2inCs F and fir. si>e could 2e e;"lained 21 the fact that newer and 1ounger fir.s are .ore sensiti0e to cash flow and hence ha0e often in0est less in order to reduce financial constraints and grow in si>e . &n the other hand( .atured fir.s tend to in0est less in order to sustain alread1 attained "ositions and si>es. Also( s.aller fir.s usuall1 ha0e less collateral .aBing the. una2le to access e;ternal fund. &ur results su""ort the findings of 7ertler and 7ilchrist 199%#D ,atthias and A2raha. 2))*# who docu.ent negati0e relationshi"s 2etween fir. si>e and in0est.ent le0els. 4<uation * e;a.ines the effect of industrial classification on cash flow-in0est.ent relationshi". S"ecificall1( four industrial structures under the ,anufacturing sector are e;a.ined 21 this stud1. :he ta2le 2elow "resents regression results. :a2le 7 Regression ,odel * Results :o2inCs <( 8ash flow and Industrial 8lassification# 8oefficients 8lassification R R8onstant 8ash -u..1 s<uare flow 'aria2le ,odel 8&N7=&,4RA:4S .917a ).$%) 119.+67 ).))* -1)6.$6% *a ,odel F&&-( .91$a ).$%* 1*7.%%1 .))* -17%.71% *2 E4'4RA74S AN:&EA88& ,odel 8@4,I8A= AN- .922a ).$+1 1$.)6) ).))* 27*.+%* *c !AIN:S ,odel E/I=-IN7 .916a ).$*$ $9.)$1 ).))* 9.*7$ *d ,A:4RIA=S

Sig ).**7 ).11%

Re.arB Not Sig Not Sig

).)12 ).9*9

Sig Not Sig

Results show that cash flow coefficient for the four industries re.ain the sa.e. :his i."lies that the in0est.ent le0els of the four industrial structures are not sensiti0e to fluctuations in cash flow. @owe0er( the classification coefficient for the industries widel1 0aried. :he industrial structure coefficient for che.ical and "aints is higher than that of 2uilding .aterials 21 29 ti.es. :his indicates that fir.s in che.ical and "aints are .ore significantl1 affected 21 the in0est.ent Kcash flow relationshi". It is i."ortant to note that although the coefficient for conglo.erates( food( 2e0erages and to2acco and 2uilding .aterials are not significant( there was a slight i."ro0e.ent in R s<uare 0alues indicating that their inclusion in the .odel ha0e incre.ental e;"lanator1 "ower. *. Conclusion :his stud1 used three inde"endent 0aria2les cash flow( fir. si>e and industrial classification# for the "ur"ose of "redicting in0est.ent- cash flow relationshi". A significant "ositi0e relationshi" 2etween in0est.ent and cash flow was docu.ented. :his suggests that the in0est.ent le0el of stud1 fir.s is "redicted 21 the a0aila2ilit1 of internal finance. :he second .odel also re0ealed that fir. si>e has a significant negati0e effect on cash flowin0est.ent relationshi" of stud1 fir.s. As such as fir.s grow 2igger in si>e( the1 ha0e less need for internal in0est.ent funds. :he third regression .odel results show that there e;ists a "ositi0e i."act of the che.ical and "aint industr1 on the in0est.ent le0el while other industries showed an insignificant relationshi". A "ossi2le e;"lanation for this could 2e that nature of fir.s in the che.ical and "aints which are .ostl1 indigenous. :he1 are s.aller in si>e in relation to the conglo.erates( food( 2e0erages and to2acco industries and would as found fro. regression e<uation 2 need to in0est .ore so as to reduce financial constraints and grow in si>e. :his stud1 clearl1 esta2lishes that in0est.ent le0els are affected 21 the a0aila2ilit1 of internal finance and that s.aller fir.s are .oti0ated to in0est .ore. ?e also docu.ent that the industr1 t1"e "la1s a crucial role in deter.ining in0est.ent le0els. In 0iew of these findings( we e."hasi>e that it is i."ortant that .anagers consider in0est.ent initiati0es in the light of the fir.Cs cor"orate a2ilities. ,anagers should understand that a .isalign.ent of in0est.ent with internalA characteristic factors can 2e detri.ental. Si>e and Industr1 t1"e of fir.s are salient characteristic features that .ust 2e "ut into consideration while undertaBing in0est.ent strides and decisions in0ol0ing internal funds a0aila2ilit1. Future researchers .ight need to incor"orate other industriesA sectors into this heated finance de2ate and also "ossi2l1 e;tend the stud1 "eriod while e."lo1ing long and short ter. sources of finance. It .a1 also 2e useful to deter.ine whether significant relationshi"s e.erge or change as longer ter. financial infor.ation is 2rought 69

Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.12( 2)1*

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to 2ear. #eferences A2el( A.E. Q &li0ier( E.J. 19$6#. :he !resent 'alue of !rofits and 81clical ,o0e.ents in In0est.ent. Econometrica =I'( 2%9-27*. Adelegan( &.J. 2))6#. ,arBet Reactions to Initiations and &.issions of -i0idend on the Nigerian StocB ,arBet. Ibadan Journal of the Social Sciences. 'ol.%( No.1 ("" %7-+9. Alla1annis( 7. Q ,u>u.dar( A. 2))%# .:he I."act of Negati0e 8ash Flow and Influential &2ser0ations on In0est.ent-8ash Flow Sensiti0it1 4sti.ates. Journal of Banking and Finance( 2$( 9)1-9*). Earth( ,. J. Q Ra.e1( '.A. 2)))# .:he 8ost 8hannel of ,onetar1 :rans.ission. NE4R worBing "a"er 767+. Eond( SD 4lston( J.AD ,airesse( J. Q ,ulBa1( E. 2))*# .Financial Factors and In0est.ent in Eelgiu.( France( 7er.an1( and the /nited 9ingdo.5 A 8o."arison /sing 8o."an1 !anel -ata. Review of Economics and Statistics( $+( 1+*-16+. 8ar"enter( R.4 Q 7uariglia( A. 2))*#. 8ash flow( In0est.ent and In0est.ent &""ortunities5 New :ests /sing /.9 !anel -ata. -iscussion !a"er No. )*A2%. /ni0ersit1 of Nottingha.. 8hatelain( J.ED 4hr.ann( ,D 7enerale( AD ,artine>-!ages( JD 'er.eulen( !. Q ?or.s( A. 2))*#. ,onetar1 :rans.ission in the 4uro Area5 New 40idence fro. ,icro -ata on Fir.s and EanBs. Journal of the European Economic Association( 1( 7*1-7%2. 8larBe( 8.D Stoddard( -. Q Shield( '. 199+#. 8or"orate Financing Re0isited. Insights into an 4.erging Financial Structure5 :he 4;"erience of :rinidad and :o2ago. Ra.esh Ra.sran ed#. -edola( =. Q =i""i( F. 2))+# .:he ,onetar1 :rans.ission ,echanis.5 40idence fro. the Industr1 -ata of Fi0e &48- 8ountries.( forthco.ing European Economic Review. -e0ereu; ,. Q Schiantarelli( F. 199)# .In0est.ent( Financial factors( and 8ash flow5 40idence fro. /9 !anel -ata in As1..etric Infor.ation. Corporate Finance and Investment( ed. R. 7. @u22ard ( 8hicago( /ni0ersit1 !ress. 279-*)6. Fa>>ari( S.,.( @u22ard( 7.R. Q !etersen( E.8. 19$$# .Financing 8onstraints and 8or"orate In0est.ent. ErooBings !a"ers on 4cono.ic Acti0it1( 1( 1%1-19+. FranB( 9.R. 19$2#. Investments. 8ES 8ollege !u2lishing( New IorB. 7ertler( ,. Q 7ilchrist( S. 199%#.,onetar1 !olic1( Eusiness 81cles( and :he Eeha0ior of S.all ,anufacturing Fir.s. uarterl! Journal of Economics( 1)9( *)9-*%). 7ugler( 9D ,ueller( -.8 Q Iurtoglu( E.E. 1997#. ,arginal <( :o2inCs <( 8ash flow and In0est.ent. ?orBing !a"er( -e"art.ent of 4cono.ics( /ni0ersit1 of 'ienna. Inanga( 4.= . 1999#. African 8a"ital ,arBets and -o.estic Resource ,o2ili>ation. !a"er "resented at the 7lo2al Financial 8risis 8onference in 8airo( 4g1"t. -ece.2er#. 9a"lan( S. Q Jingales( =. 199+#. -o financing 8onstraints e;"lain wh1 In0est.ent is correlated with 8ash flowR ?orBing !a"er No.+267( National Eureau of 4cono.ic Research. 9oo( J. Q ,aeng( 9. 2))+#. :he 4ffect of Financial =i2erali>ation on Fir.sC In0est.ents in 9orea( Journal of Asian Economics( 16( 2$1-297. =a.ont( &. 1997#. 8ash Flow and In0est.ent5 40idence fro. Internal 8a"ital ,arBets. Journal of Finance( A.erican Finance Association. 'ol.+2 1# "".$*-1)9( ,arch. =ewellen( J. Q =ewellen( 9. 2)1*#. In0est.ent and 8ash flow5 New 40idence. ?orBing !a"er -art.outh 8ollege. ,atthias( R. Q A2raha.( A. 2))*#. :he I."act of 8ash flow on 8or"orate In0est.ent in :rinidad and :o2ago. "one! Affairs# Centro de Estudios "onetarios $atinoamericanos( 'ol. ) 1# "ages 9*-11$. Januar1. ,i>en( !.Q 'er.eulen 2))+#. 8or"orate In0est.ent and 8ash flow Sensiti0it1. ?hat dri0es the Relationshi"R ?orBing !"er Series. 4uro"ean 8entral EanB. &liner( S.R Q Rude2usch( 7.-. 1996#. ,onetar1 !olic1 and 8redit 8onditions5 40idence fro. the 8o."osition of 4;ternal Finance5 8o..ent. A.erican 4cono.ic Re0iew( $6( *))-*)9. &ludo1i( S.E. 1999#. 8a"ital ,arBet 4fficienc1 and the 4ffects of 4arnings Announce.ents on Share !rices in Nigeria. An /n"u2lished !h- :hesis( -e"art.ent of 4cono.ics( /ni0ersit1 of I2adan. SarBis( J.9. 19$*#. Investment "anagement# %heor! and Application. ,ac.illan !u2lishing 8o."an1 Inc.$66 :hird A0enue( New IorB. Schaller( @. 199*#. As1..etric Infor.ation( =i<uidit1 8onstraints and 8anadian In0est.ent. Canadian Journal of Economics( 26( ++2-+7%. Schiantarelli( F. 1996#. Financial 8onstraints and In0est.ent5 ,ethodological Issues and International 40idence. &'ford Review of Economic (olic!# su..er 1996( "". 7)-$9. Schnure( 8. 2)))#. Internal 8a"ital ,arBets and In0est.ent5 -o the 8ash flow 8onstraints reall1 2indR Finance and 4cono.ic -iscussion Series( Federal Reser0e Eoard *9#.

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.12( 2)1*

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:o2in( J. 1969#. A 7eneral 4<uili2riu. A""roach to ,onetar1 :heor1. Journal of "one!# Credit and Banking. 'ol.1 No.1 "".1+-21. ?orld EanB 7rou" 2))7#. -oing Eusiness 2))75 @ow to Refor.. ?ashington( -.8. htt"5AAo"enBnowledge.world2anB.orgAhandleA1)9$6A72%+ .

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