International Corporate Investment and the Role of Financial Constraints
W. Sean Cleary
Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science; York University - Schulich School of Business
EFMA 2002 London Meetings
International evidence over the 1987-1997 period suggests that the capital expenditures of firms that are financially constrained are much less sensitive to the availability of internal funds than unconstrained firms. The evidence is particularly strong when firms are classified according to financial health, but is also prevalent for groups formed according to dividend behavior and firm size. The results provide strong support for the generality of the results of Kaplan and Zingales (1997) and Cleary (1999). A major reason for the weak investment-cash flow sensitivity displayed by unhealthy firms is that they appear to be busy building up financial slack, which has long-term value, as postulated by Myers and Majluf (1984).
Number of Pages in PDF File: 42
JEL Classification: E22, E44, G31working papers series
Date posted: June 12, 2002
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