Corporate governance and investment-cash flow sensitivity in Brazil

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Published: Nov 5, 2019
DOI: https://doi.org/10.12660/rbfin.v17n2.2019.78083
Keywords:
Corporate governance Financial constraint Investment-cash flow sensitivity IPGC.

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Breno Augusto de Oliveira Silva
Instituto Federal do Triângulo Mineiro - IFTM
Daniel Ferreira Caixe
Centro Universitário Estácio de Ribeirão Preto
Elizabeth Krauter
Universidade de São Paulo - USP

Abstract

This study aimed to investigate the investment-cash flow sensitivity for Brazilian companies with different levels of corporate governance. Investment models were estimated through System Generalized Method of Moments (GMM-Sys) for longitudinal data of 248 Brazilian publicly traded companies from 2006 to 2015. The firms were a priori classified in two groups of governance quality according to the Corporate Governance Practices Index (IPGC). The results showed that the quality of corporate governance influenced the investment-cash flow sensitivity, and this relationship was negative and significant only for firms with poor governance. This result can be interpreted as a sign that these firms seek to increase their cash flow reserves and reduce investments for reasons related to financial constraints and/or agency problems.

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How to Cite
Silva, B. A. de O., Caixe, D. F., & Krauter, E. (2019). Corporate governance and investment-cash flow sensitivity in Brazil. Brazilian Review of Finance, 17(2), 72–86. https://doi.org/10.12660/rbfin.v17n2.2019.78083
Issue
Vol. 17 No. 2 (2019): April-June
Section
Long Paper

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