Financing Constraints, Earning Quality and Investment Efficiency: Evidence from Africa

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abdurahman_aliyi_ibrahim
abdurahman_aliyi_ibrahim
2
Abdurahman Aliyi Ibrahim
Abdurahman Aliyi Ibrahim
3
Man Wang
Man Wang
1 Dongbei University of Finance and Economics

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GJMBR Volume 21 Issue C2

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This study investigates the effect of financing constraints on investment efficiency in developing countries and how this relationship is conditional to the earning quality. We use the non-financial firms from 15 Africa countries from 2009 to 2018. We employed panel data analysis and classified the sample into a financially constrained and unconstrained firm to analyze this relationship. The results show that financing constraints affect investment efficiency; this effect is more pronounced in constrained firms than unconstrained firms. We evidenced that investment efficiency is more sensitive to cash flows for the financially constrained firm than the unconstrained firms. Our findings also posit that constrained firms are more likely to overinvest than unconstrained firms because of their internal cash flows. In contrast, unconstrained firms are more likely to under invest than constrained firms.

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No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

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Not applicable for this article.

abdurahman_aliyi_ibrahim. 2021. \u201cFinancing Constraints, Earning Quality and Investment Efficiency: Evidence from Africa\u201d. Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 21 (GJMBR Volume 21 Issue C2): .

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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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GJMBR-C Classification: JEL Code: G11
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v1.2

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March 19, 2021

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English

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This study investigates the effect of financing constraints on investment efficiency in developing countries and how this relationship is conditional to the earning quality. We use the non-financial firms from 15 Africa countries from 2009 to 2018. We employed panel data analysis and classified the sample into a financially constrained and unconstrained firm to analyze this relationship. The results show that financing constraints affect investment efficiency; this effect is more pronounced in constrained firms than unconstrained firms. We evidenced that investment efficiency is more sensitive to cash flows for the financially constrained firm than the unconstrained firms. Our findings also posit that constrained firms are more likely to overinvest than unconstrained firms because of their internal cash flows. In contrast, unconstrained firms are more likely to under invest than constrained firms.

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Financing Constraints, Earning Quality and Investment Efficiency: Evidence from Africa

Abdurahman Aliyi Ibrahim
Abdurahman Aliyi Ibrahim
Man Wang
Man Wang

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