A comparative study on the relationship between availability of internal funds and investments of financial and not financially constrained commercial/industrial firms for the years 1995-1999: An application of the Cleary study on Philippine setting

• Main Authors: Cadhit, Alan L., Castro, Francis Raymond M., Orbeta, Andy Kwyth D., Silayan, Hilarion Z.
• Format: text
• Language: English
• Published: Animo Repository 2001
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/17120
• Institution: De La Salle University

This paper entitled, A comparative study on the relationship between availability of internal funds and investments of financially and not financially constrained commercial/industrial firms for the years 1995-1999: An application of the Cleary Study on Philippine Setting started with the problem of whether the investments of not financially constrained commercial/industrial firms are more sensitive to availability of internal funds than those of financially-constrained ones. To resolve that problem, three (3) hypotheses sets were developed. To establish a procedure of resolution, the work of Sean Cleary (1999) on 1,317 US firms was used as a pattern. In terms of research design, the proponents used the comparative-correlational design. In terms of samples, 72 firms were used, divided equally likely between a group of 36 financially constrained firms and another group of 36 not financially constrained firms. The method of classification followed the Cleary procedure of generating Z-scores from weights obtained from canonical analysis of the data. In terms of statistical tools, canonical analysis, the t-test, the F-test, the correlation tests, and the test of the probability values were all conducted at the 5% level of significance. Stochastic or probabilistic weights were also used on the original data, based on the market capitalization of individual firms. Consequently, three major findings were generated. First, that a linear association was detected using the combined cross-sectional data of sample firms analyzed on a year-by-year basis, while no such association was detected by using the time series data at the firm-by-firm level of analysis. Second, no significant difference was detected on the sensitivities of firms to the availability of internally generated funds, regardless of classification into financially constrained or not financially constrained. Third, no significant difference was detected on the variations of investments of firms, regardless of classification as belonging to the 36 financially constrained firms or the 36 not financially constrained firms. In the end, the paper introduced recommendations to future researcher with the view to a keener appreciation of pooled data, which combines both time series and cross-sectional data, more effective testing, plus more stable and robust results.