The implications of financial conservatism for African firms

Chimwemwe Chipeta*, Nadeem Aftab, Michael Machokoto

*Corresponding author for this work

Research output: Contribution to JournalArticlepeer-review

Abstract

Using a large sample of African firms over the period 1982—2015, we find that firms forced into financial conservatism due to financial constraints have lower stock market valuation and profitability relative to their unconstrained counterparts who choose conservatism (optional financial conservatism) for motives linked to financial flexibility. Our further analyses, however, show a decrease in investments and employment with financial conservatism in the long-run. This finding highlights a significant trade-off with the desire to attain or enhance financial flexibility. Overall, our study confirms the benefits of optional financial conservatism and detriments of forced financial conservatism in developing markets where access to finance is limited.
Original languageEnglish
Pages (from-to)1-19
Number of pages19
JournalFinance Research Letters
Early online date8 Jan 2021
DOIs
Publication statusE-pub ahead of print - 8 Jan 2021

Keywords

  • Capital structure
  • Developing markets
  • Financial conservatism
  • Financial constraints
  • Zero-debt

Fingerprint Dive into the research topics of 'The implications of financial conservatism for African firms'. Together they form a unique fingerprint.

Cite this