Examining the sources of financial flexibility: A study of firms listed in Sweden
Abstract: This study aims to determine the significance of different sources of financial flexibility that enables firms to respond to negative shocks or investment opportunities in form of unexpected periods of insufficient resources. The empirical study is based on a model that proxy for firms’ investment and dividend policies to further examine how possible cash shortfalls is resolved. The sample covers the OMXS30 during the time period 1995-2011. The model is extended, using cross-sectional determinants, recognizing the importance of financial flexibility and its potential impact on financial policies. The findings suggests that there exist significant cross-sectional differences in how firms resolve cash shortfalls and that asset sales appear to be the most common method for firms to raise funds in face of cash shortfalls. Possible explanation of this is provided in agency theory and pecking-order theory, calling for further research.
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