Abstract

http://ssrn.com/abstract=2212419
 
 

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How Do Frictions Affect Corporate Investment? A Structural Approach


Maria Cecilia Bustamante


Department of Finance, University of Maryland

July 17, 2015

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

Abstract:     
This paper provides a structural approach to test investment equations based on the log-likelihood function of a non-linear investment rule. The analysis integrates the predictions of the q-theory for the commonly studied active region of investment, and provides new inferences on how real and financing frictions affect the probability that a firm invests. Our empirical findings are consistent with the macro-finance literature suggesting that q-theory models with non-convex investment frictions better explain the data. We also find that both real and financing costs of investment are related to the capital intensity of the industry in which firms operate.

Number of Pages in PDF File: 50

Keywords: Tobin's Q, financing frictions, real frictions, investment, log likelihood

JEL Classification: E22, G31, G32


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Date posted: February 6, 2013 ; Last revised: July 18, 2015

Suggested Citation

Bustamante, Maria Cecilia, How Do Frictions Affect Corporate Investment? A Structural Approach (July 17, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: http://ssrn.com/abstract=2212419 or http://dx.doi.org/10.2139/ssrn.2212419

Contact Information

Maria Cecilia Bustamante (Contact Author)
Department of Finance, University of Maryland ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
HOME PAGE: http://https://sites.google.com/a/rhsmith.umd.edu/mcbustam/?pli=1
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References:  45
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