Cash flow and growth considering different ownership structure
Abstract
Purpose
The purpose of this paper is to examine the effect of financial constraints on firm growth considering six types of ownership structure. According to the theory of financial management and asymmetric information theory, external funds are costly for small firms. However, some ownership structures may alleviate cash flow-growth sensitivity. The paper considers different types of ownership structure to study cash flow-growth relation and its sensitivity.
Design/methodology/approach
Results are drawn from a dynamic panel data model under the two specific empirical models. Those designs can capture important empirical meanings.
Findings
The sensitivity of growth to cash flow decreases significantly when managers control larger proportions of a firm's stock and when a firm belongs to a conglomerate. The findings also show that small and young firms grow faster. R&D and advertising expenditures also motivate a firm's growth, as do profitability and abundant cash flow.
Originality/value
This paper uses a dynamic panel data model to investigate the effect of cash flow on firms' growth under six types of ownership structure. The sensitivity analysis of growth to cash flow provides new results for traditional literature. In fact, different ownership structures lead to distinct cash flow-growth sensitivity.
Keywords
Citation
Lu, W.-C. and Jhuang, R.-L. (2014), "Cash flow and growth considering different ownership structure", Journal of Modelling in Management, Vol. 9 No. 1, pp. 5-17. https://doi.org/10.1108/JM2-04-2011-0028
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited