The Library
Firms' investment under financial constraints : a euro area investigation
Tools
Pál, Rozália and Kozhan, Roman (2009) Firms' investment under financial constraints : a euro area investigation. Applied Financial Economics, Vol.19 (No.20). pp. 1611-1624. doi:10.1080/09603100802599605 ISSN 0960-3107.
Research output not available from this repository.
Request-a-Copy directly from author or use local Library Get it For Me service.
Official URL: http://dx.doi.org/10.1080/09603100802599605
Abstract
In this article we describe a model of optimal investment of various types of financially constrained firms. We show that the resulting relationship between internal funds and investment is nonmonotonic. In particular, the magnitude of Cash Flow (CF) sensitivity of the investment is lower for the firms with credit rationing compared to the firms that are able to obtain short-term external financing. The inverse relationship is driven by the leverage multiplier effect. A positive CF shock increases the short-term borrowing capacity of the firm, which in turn has a positive effect on investment and the firm's growth. Moreover, the leverage multiplier effect is the highest for firms relying on short-term credits and it is lower for firms that are able to obtain long-term financing. Analysing a large euro area data set we find strong empirical support for our theoretical predictions. The results also help to explain some contrasting findings in the financial constraints literature.
Item Type: | Journal Article | ||||
---|---|---|---|---|---|
Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
||||
Journal or Publication Title: | Applied Financial Economics | ||||
Publisher: | Routledge | ||||
ISSN: | 0960-3107 | ||||
Official Date: | 2009 | ||||
Dates: |
|
||||
Volume: | Vol.19 | ||||
Number: | No.20 | ||||
Page Range: | pp. 1611-1624 | ||||
DOI: | 10.1080/09603100802599605 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
Request changes or add full text files to a record
Repository staff actions (login required)
View Item |