The impact of cross-ownership on the reaction of corporate investment and financing constraints: A panel threshold model

This paper studies whether or not investment decisions are financially constrained in a cross-ownership system of Taiwan. Different from the financial structure in the USA, subsidiaries in Taiwan are allowed to buy stocks of the parent companies. Hence, the conventional debt-to-equity ratio is inapp...

Full description

Saved in:
Bibliographic Details
Published inApplied economics Vol. 37; no. 20; pp. 2315 - 2325
Main Authors Shen, Chung-Hua, Wang, Chien-An
Format Journal Article
LanguageEnglish
Published London Taylor & Francis Group 10.11.2005
Taylor and Francis Journals
Taylor & Francis Ltd
SeriesApplied Economics
Subjects
Applied economics
Business investment
Debt to equity ratio
Decision analysis
Economic models
Finance
Hypothesis testing
Investment policy
Ownership
Studies
Subsidiaries
Systems analysis
Taiwan
Taiwan
Online AccessGet full text

Cover

More Information
Summary:This paper studies whether or not investment decisions are financially constrained in a cross-ownership system of Taiwan. Different from the financial structure in the USA, subsidiaries in Taiwan are allowed to buy stocks of the parent companies. Hence, the conventional debt-to-equity ratio is inappropriate to divide firms into high and low-debt firms. Instead, a new threshold variable - the adjusted debt-equity ratio (ADE) - is employed to divide the sample into high-debt firms and low-debt firms. A panel of 115 Taiwan-listed firms for the period 1991-1997 is used. Evidence supports the cash flow hypothesis and ADE has a notable significant influence on the financial constraints.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0003-6846
1466-4283
DOI:10.1080/00036840500218786