Corporate Financial Flexibility, Investment Activities, and Cash Holding: Evidence from Indonesia

Title: Corporate Financial Flexibility, Investment Activities, andCorporate Financial Flexibility, Investment Activities, andCash Holding: Evidence from Indonesia

Author(s): Rahmat Heru Setianto and Addenver Kusumaputra (Airlangga University)

DOI:https://doi/org/10.21002/icmr.v9i2.7470

ABSTRACT

This paper empirically examines the impact of financial flexibility on investment activities. Furthermore,This paper empirically examines the impact of financial flexibility on investment activities. Furthermore,it also investigates how financial flexibility determines the sensitivity of investment activitiesto cash flow. By using annual data from Indonesian manufacturing firms from 2011 to 2015and employing regression techniques, the results reveal that financial flexibility enhances investmentability and decreases the sensitivity of investment activities to cash flow. Further analysis indicatesthat financially flexible firms in Indonesia tend to hold a higher level of cash as a buffer to achievefinancial flexibility. These findings yield important implications for managers and investors, as Indonesia’sdomestic market is rapidly expanding and significant business opportunities are created. Thiscondition provides firms with an incentive to grow more quickly, hence increasing financing needs tofinance firms’ expansion.

Keywords: Financial flexibility; Unused debt capacity; Cash flow; Investment

Link: http://journal.ui.ac.id/index.php/icmr/article/view/7470/pdf