What is it about?

The paper provides empirical insights into the relationships between macroeconomic factors, institutional environment and corporate FF. The results suggest a substantial change in FF across firms. Inflation, institutional quality and banking sector development negatively affect FF, while equity market development has a significant positive impact. Gross domestic product growth was found to be an insignificant predictor of FF.

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Why is it important?

This study adds to the literature showing that not only firm-specific factors affect corporate FF, but country-specific macroeconomic and institutional factors also have a significant effect. It also adds to the literature in the area of corporate FF; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

Perspectives

The authors of this study believe that it will enable the various stakeholders including finance managers, investors and regulators to make rational decisions.

Yasin Mahmood
International Islamic University

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This page is a summary of: The role of macroeconomic and institutional factors in creating corporate financial flexibility, Management Decision, November 2019, Emerald, DOI: 10.1108/md-12-2018-1332.
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