Prem Prasad Silwal


This study mainly aimed at revealing recent financing practices based on financial constraint and unconstraint in Nepalese firms. The survey is based on the structured questionnaire completed by 122 major Nepalese firms of which 22 were in the manufacturing sector, 38 were in service, 36 were in trading, 16 in communication sector and remaining 10 were in the health sector. The survey shows that constrained firms planned to reduce employment and new investment. The study further reveals that constrained firms funding abnormally large investment primarily by cash flow and cash holdings and relatively less from debt capital. Constrained firms also suffer from cash and generate it after selling more assets for the business operation. The study also indicates that many constrained firms drop their investment due to the inability to borrow, the majority of finance officers expressed their potential investment could not be implemented. 26% of respondents of private firms opined that they cancelled or postponed their planned investment when access to the capital market is limited.


Cash flow, Cash holdings, Financial constraint, Funding, Investment.


Almeida H, and Campello M. (2010). "Financing Frictions and the Substitution between Internal and External Funds", The Journal of Financial and Quantitative Analysis, Vol.45(3), pp.589-622.

Almeida H, Campello M, and Weisbach M. (2004). “The Cash Flow Sensitivity of Cash”, Journal of Finance, Vol.59(4), pp.1777-1804.

Alti A. (2003). "How Sensitive is Investment to Cash Flow When Financing Is frictionless?", The Journal of Finance, Vol.48 (2), pp.707-722.

Athey M, and Thomas P. (1994). “Internal funds and corporate investment in India”, Journal of development Economics, Vol.5, pp.287-303.

Baker M, and Wulrgler J. (2002). "Market Timing and Capital structure", Journal of Finance, Vol.57, pp.1-32.

Bancel F, and Mittoo UR. (2004). "Cross-Country Determinants of Capital Structure Choice: A Survey of European Firms", Financial Management, Vol.33, pp.103-132.

Beck T, Demirgüç-Kunt A, Laeven L, and Maksimovic V. (2006). "The Determinants of Financing Obstacles",.Journal of International Money and Finance, Vol.25(6), pp.932-952.

Bhaduri SN. (2005)." Investment, financial constraints and financial liberalization: Some stylized facts from a developing economy, India", Journal of Asian Economics, Vol.16(4), pp.704-718.

Campello M, Graham JR, and Harvey CR. (2010). “The Real effects of Financial Constraint: Evidence from financial crisis”, Journal of financial Economics, Vol.97, pp.470-487.

Fama EF, and French KR. (2002). “Testing Trade-Off and Pecking Order Prediction about Dividend and debt”, Review of Financial Studies, Vol.15, pp.1-33.

Fama EF, and French KR. (2005). "Financing Decisions: Who Issues Stock?", Journal of Financial Economics, Vol.76, pp.549-582.

Faulkender M, and Wang R. (1998). “Taxes, Financing Decisions, and firm Value of Cash”, Journal of Finance, Vol.61, pp.1957-1990.

Fazzari SM, Hubbard RG, and Petersen BC. (1988). “Financing Constraints and Corporate Investment”, Brookings papers on Economic Activity, Vol.24, pp.328-342.

Graham JR, and Harvey CR. (2001). "The Theory and Practice of Corporate Finance: Evidence from the Field", Journal of financial Economics, Vol.60, pp.187-243.

Guariglia A, Liu X, and Song L. (2014). “Internal Finance and Growth: Micro econometric Evidence on Chinese Firms”, Journal of Chinese Economic and Business Studies, Vol.12(1), pp.29-45.

Hovakimian A, Opler T, and Titman S. (2001). “The Debt-Equity Choice”, Journal of financial and Quantitative Analysis, Vol 36, pp.1-24.

Hovakimian G. (2009). "Determinants of Investment Cash Flow Sensitivity", Financial Management, Vol.38(1), pp.161-183.

Kayhan A, and Titman S. (2007). "Firms’ Histories and Their capital Structure", Journal of Financial Economics, Vol.83(1), pp.1-32.

Kim CS, Mauer D, and Sherman A. (1998). “The Determinants of Corporate Liquidity: Theory and Evidence”, Journal of Financial and Quantitative Analysis, Vol.33, pp.335-339.

Krejcie R, and Morgan D. (1970). “Determining sample size for research activities”, Educational and Psychological Measurement, Vol.30, pp.607-610.

Maharjan R. (2015). "Nepalese Managers’ views on Investment Decision", Behavioral Research Journal, Vol.4(2), pp.41-53.

Modigliani F, and Miller MH. (1958). "The Cost of Capital, Corporation Finance and the Theory of Investment", The American Economic Review, Vol.48(3), pp.261-297.

Myers S, and Majluf, N. (1984). “Corporate Financing and Investment Decision when firms have information that investors do not have”, Journal of Financial Economics, Vol.13, pp.187-221.

Okpara JO. (2006). "Determinants of Small Business growth constraint in sub job satisfaction in a sub-Saharan African Economy", SAM advanced Management Journal, Vol.21(3), pp.224-240.

Opler T, Pinkowitz L, Stulz R, and Williamson R. (1999). “The Determinants and Implications of Cash Holdings”, Journal of Financial economics, Vol.52, pp.3-46.

Pinkowitz L, and Williamson R. (2006). “What is a Dollar Worth? The Market Value of Cash Holdings?”, Review of Financial Study, Vol.14, pp.1059-1082.

Pradhan RS, and Kurmi MP. (2004). “The Relationship between Firm Investment and Financial Status of Nepalese enterprises”, A Journal of Management and Development Review, Vol.1, pp.9-16.

Pradhan RS. (2006). “Research in Nepalese Finance”, Buddha Academic Publishers and Distributors (P) Ltd, Kathmandu.

Rajan RG, and Zingales L. (1995). "What Do We Know About Capital Structure? Some Evidence from International Data", Journal of Finance, Vol.50, pp.1421-1460.

Sibilkov V, and Danis JD. (2009). “Financial Constraint, Investment, and the Value of Cash Holdings”, The Review of Financial Studies, Vol.23(1), pp.247-269.

Silwal P. (2016). “Financing Constraint and External financing in Nepalese firms”, THE BATUK: A Journal of Interdisciplinary Studies, Vol.3(3), pp.18-30.

Tahir U, and Ullah N.(2014). “The Impact of Cash Flow Volatility on Cash-Cash Flow Sensitivity”, IOSR Journal of Business and Management, pp.47-54

Welch I. (2004). “Capital Structures and Stock Returns”, Journal of Political Economy, Vol.112(1), pp.106-131.


  • There are currently no refbacks.

Send mail to with questions or comments about this web site. 

International Journal of Management and Social Sciences, All rights reserved.