[9] Moreover, some financial information may not be valuable for external users to acquire a huge benefit, for example, how much money does a company spend for its greening of headquarters.
[16] For example, in agriculture industry, calculating cost per crop is difficult and expensive and hence they choose to report the price in the current market which is easier for farmers.
[18] In particular, firms need to choose the method that "least likely overstates assets and income or understates liabilities and losses"[3] when encountering accounting issues.
During the past two decades, researchers have conducted a large number of empirical studies related to financial constraints, and the measurements they use have generated controversy, Fazari et al. (1987) in their seminal work, find a positive relationship between resources available for investment and cash flow.
[21] Because external financing, such as taking on debt or acquiring capital, is not immediately available, such firms are heavily dependent on their internal cash flow.
[22] However, many research papers show doubt on the idea that the relationship between investment and cash flow indicates financial constraint.
The authors of another seminal study on the subject, Kaplan and Zingales (1997), find that firms classified as having financial constraint, such as in Fazzari et al (1987), appear to have less constriction and less sensitivity to cash flow,[23] which contradicts the initial hypothesis.
In addition to the fact that financial markets have increased the pressure on companies to obtain positive short-term results, in a situation of financial constraint, managers generally address this situation by decreasing the intensity of marketing to show acceptable short-term results to shareholders; however, these decisions impact negatively the long-term firm value.