Abstract

http://ssrn.com/abstract=298027
 
 

References (35)



 
 

Citations (16)



 


 



Financial Constraints and Investment-Cash Flow Sensitivities: New Research Directions


Heitor Almeida


University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Murillo Campello


Cornell University; National Bureau of Economic Research (NBER)

December 12, 2001

Twelfth Annual Utah Winter Finance Conference

Abstract:     
A key assumption in the existing theoretical work on firm financial constraints is that these constraints translate entirely into higher costs of funds. This approach poses two types of difficulties to the research on that topic. First, it inadvertently narrows our understanding about financial constraints since, in practice, firms often face credit rationing. Second, it is a matter of debate whether such an approach can deliver unambiguous implications for corporate investment. The current paper develops a theory explaining the relationship between corporate investment and cash flow when firms face credit quantity constraints. We show that when firms' investments and use of external finance are endogenously related, investment-cash flow sensitivities increase as credit constraints are relaxed. From an empirical perspective, our analysis suggests a consistent way of identifying the impact of financial constraints on corporate investment. Our predictions, however, are markedly different from those examined in most empirical studies in this area.

Number of Pages in PDF File: 26

Keywords: investment, cash-flow, investment-cash flow sensitivities, financial constraints, credit rationing

JEL Classification: G31, G32

working papers series


Download This Paper

Date posted: January 29, 2002  

Suggested Citation

Almeida, Heitor and Campello, Murillo, Financial Constraints and Investment-Cash Flow Sensitivities: New Research Directions (December 12, 2001). Twelfth Annual Utah Winter Finance Conference. Available at SSRN: http://ssrn.com/abstract=298027 or http://dx.doi.org/10.2139/ssrn.298027

Contact Information

Heitor Almeida (Contact Author)
University of Illinois at Urbana-Champaign ( email )
515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)
HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Murillo Campello
Cornell University ( email )
114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States
HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
Feedback to SSRN


Paper statistics
Abstract Views: 6,236
Downloads: 1,783
Download Rank: 4,188
References:  35
Citations:  16

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.422 seconds