Impact of financial development on low tangibility firms

  • Ana Marta Ferreira (Student)

Student thesis: Master's Thesis


The significance of intangible capital is steadily increasing on corporate balance sheets. Previous studies have identified a positive relationship between the increase in intangible capital and the propensity to retain cash holdings. Companies experiencing a decline on their tangibility tend to hoard cash, forgoing investments. The present dissertation intends to explore whether financial development can facilitate firm growth by lowering cash hoarding and enhancing firm’s investment across a sample of 100 countries spanning from 1990 to 2022. The findings reveal a positive and significant correlation between the interaction term under analysis, 𝐴𝑠𝑠𝑒𝑡 𝑇𝑎𝑛𝑔𝑖𝑏𝑖𝑙𝑖𝑡𝑦 × 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐷𝑒𝑣𝑒𝑙𝑜𝑝𝑚𝑒𝑛𝑡, with the variable cash holdings. This supports the idea that a well-developed financial system may diminish the importance of tangible assets in cash holding strategies. While additional findings underscore the negative influence of the interaction term on firm investment, their impact lacks statistical significance, indicating that financial development may not be a substantial factor in explaining the relationship between asset tangibility and investment. However, significant outcomes emerge when considering the financial constraints of firms, particularly for large and mature companies. Finally, a negative and significant correlation between the interaction term concerning investment emerges within the subsample comprising firms operating in low tangibility industries. These findings suggest that advancements in financial development have the potential to alleviate underinvestment challenges specifically for firms in low-tangibility industries. Similar results were observed in robustness tests, which included a subsample with a more balanced representation of observations across countries.
Date of Award24 Jan 2024
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorDiana Bonfim (Supervisor)


  • Financial development
  • Asset tangibility
  • Cash holdings
  • Investment


  • Mestrado em Finanças

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