Do financial restricted companies use the cash flow for investment or for cash holdings?

Abstract

The present paper aims to verify whether the most financially restricted companies use their cash flow for investment or for cash holdings. To this end, the cash flow sensitivity of investment as well as the cash flow sensitivity of cash for Brazilian publicly traded companies through the Threshold method is tested, given its classification in restricted and unrestricted companies. In this context, the models of Fazzari, Hubbard and Petersen (1984) and Almeida, Campello and Weisbach (2004) were applied, using as structural breaks the Dividends Paid, Total Assets, Z-score and KZ-index. The result of the analysis was not clear in relation to which behavior is predominant in Brazilian companies. Using the Total Asset as a Threshold, the model that was most representative was the one referring to investments in capital goods. But, considering the Z-score as a Threshold, the most representative model indicates that companies use more Cash Flow results for cash holdings. Dividends and KZ-index were not significant in the analysis.