The 2007/2008 Global Financial Crisis and the Investment-Cash Flow Sensitivities: Some Evidence from an Emerging Market

Limited studies, if any, have investigated the investment-cash flow (ICF) sensitivities of emerging markets firms and how these were impacted by the 2007/2008 global financial crisis (GFC). This study investigated the validity of ICF sensitivity as a proxy for financial constraints and the impact of the 2007/2007 GCF on the ICF sensitivities of listed firms. The study used a panel dataset drawn from 100 non-financial firms listed on the Johannesburg Stock Exchange (JSE) from 2001 to 2018 and the reduced ICF sensitivity model fitted with the error-corrected GMM5 and system GMM estimators to test its two hypotheses. The study documents that sampled firms had persistently positive and significant ICF sensitivities throughout the study period. This means that the firms remained financially constrained in the period 2001 - 2018, and the 2007/2008 GFC had an insignificant impact on these firms' financial constraints. ICF sensitivity and firm size are valid proxies of financial constraints.