FINANCING CONSTRAINTS IN SOME SELECTED MANUFACTURING FIRMS: AN APPLICATION OF STOCHASTIC FRONTIER APPROACH
Mar 15, 2016
Published in: Proceedings of the Australia-Middle East Conference on Business and Social Sciences 2016, Dubai (in partnership with The Journal of Developing Areas, Tennessee State University, USA) ISBN 978-0-9925622-3-6 401
Publisher: The Journal of Developing Areas, Tennessee State University, USA) ISBN 978-0-9925622-3-6 401
We examine the financial constraint of some listed firms in Bangladesh following the SFA approach and find that they are under severe financial constraint. The estimated investment efficiency index (IEI) demonstrates a loss of almost 80% of the rate of investment due to financing constraints. The effects of internal financing and external financing on firms’ investment activities are different. It is found that increase in international financing (cash flow) can ease the financing constraints in addition to reduce the uncertainty of the company's follow-up financing. However, using external financing, firmis likely to increase the uncertainty of future financing. These results suggest that firms in Bangladesh should rely more on internal financing to secure investment opportunities and improve the investment efficiency.