Bert D'Espallier

Does the investment opportunities bias affect the investment–cash flow sensitivities of unlisted SMEs?

Using a panel of 5999 Belgian small- and medium-sized enterprises (SMEs) over the period 2002–2008, we employ a Bayesian approach to derive firm-varying investment–cash flow sensitivities (ICFS) from reduced-form investment equations which include different measures of investment opportunities suitable for unlisted firms. We find that all our models yield similar ICFS, which are significantly related to a wide set of proxies for financing constraints and orthogonal to our measures of investment opportunities. These findings suggest that the ICFS of SMEs do not simply reflect investment opportunities. The investment opportunities bias may therefore have been overstated in previous literature.

Debt in Rural South India: Fragmentation, Social Regulation and Discrimination

Abstract This micro-level study combines multivariate and qualitative analyses to highlight the fragmented nature of debt in southern Indian rural households. It finds that debt is socially regulated in the sense that social interactions shape the cost, use and access to debt. Caste, social class and location affect how individuals borrow varying amounts from distinct money providers, for varied purposes and at differing costs. Debt thus is not purely an economic but first and foremost a social transaction which inscribes debtors and creditors into local systems of hierarchies. Furthermore, we find that debt is an illustration and catalyst of broader socio-economic and political trends, namely a lack of social protection, persistent under-employment and rising consumerism. In terms of policy implications, the study highlights the ambiguities and illusions inherent to ‘financial inclusion policies aiming to eradicate informal debt.

Why Do Firms Save Cash from Cash Flows? Evidence from Firm‐Level Estimation of Cash–Cash Flow Sensitivities

type=main xml:id=acfi12027-abs-0001> We construct firm-level estimates for the cash flow sensitivity of cash (CCFS) by modelling heterogeneous slopes in reduced-form cash equations. This approach allows identifying firms with a high, low or even negative savings propensity. We find that high CCFS firms have higher income variation, suggesting cash buffering is triggered by income shocks. High CCFS firms do not suffer from financing constraints measured by a wide selection of indicators. Our results suggest that the CCFS is not an adequate indicator to capture financing constraints. Rather, a higher CCFS indicates smoothing of income fluctuations by installing a cash buffer that successfully prevents future income shortfall.