Conditional Investment-Cash Flow Sensitivities and Financing Constraints

Stephen R. Bond and Mans Soderbom
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Stephen R. Bond: Nuffield College, Department of Economics and Centre for Business Taxation, University of Oxford, UK and Institute for Fiscal Studies

No 448, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: We study the sensitivity of investment to cash flow conditional on measures of q in an adjustment costs framework with costly external …nance. We present a benchmark model in which this conditional investment-cash flow sensitivity increases monotonically with the cost premium for external …- finance, for …firms in a fi…nancially constrained regime. Using simulated data, we show that this pattern is found in linear regressions that relate invest- ment rates to measures of both cash flow and average q. We also derive a structural equation for investment from the …first order conditions of our model, and show that this can be estimated directly.

Keywords: Investment; cash flow; …financing constraints. (search for similar items in EconPapers)
JEL-codes: D92 E22 G31 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2010-05-17
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (1)

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http://hdl.handle.net/2077/22356 (text/html)

Related works:
Journal Article: CONDITIONAL INVESTMENT–CASH FLOW SENSITIVITIES AND FINANCING CONSTRAINTS (2013)
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