Financing Investment

We examine investment behavior when firms face costs in the access to external funds. We find that despite the existence of liquidity constraints, standard investment regressions predict that cash flow is an important determinant of investment only if one ignores q. Conversely, we also obtain signif...

Full description

Saved in:
Bibliographic Details
Published in:The American economic review 2001-12, Vol.91 (5), p.1263-1285
Main Author: Gomes, Joao F.
Format: Article
Language:English
Subjects:
Capital investments
Capital stock
Capital stocks
Cash flow
Corporate finance
Costs
Economic costs
Economic models
Enterprises
Finance
Financial investments
Financing methods
Fixed costs
Interest rates
Investment
Investment decisions
Investments
Liquidity
Planned investments
Regression analysis
Small & medium sized enterprises-SME
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We examine investment behavior when firms face costs in the access to external funds. We find that despite the existence of liquidity constraints, standard investment regressions predict that cash flow is an important determinant of investment only if one ignores q. Conversely, we also obtain significant cash flow effects even in the absence of financial frictions. These findings provide support to the argument that the success of cash-flow-augmented investment regressions is probably due to a combination of measurement error in q and identification problems.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.91.5.1263