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Investment, Financing Constraints, and Internal Capital Markets: Evidence from the Advertising Expenditures of Multinational FirmsC. Edward FeeMichigan State University - Department of Finance Charles J. HadlockMichigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management Joshua R. PierceUniversity of South Carolina - Moore School of Business May 18, 2007 Abstract: Using a unique, hand-collected dataset, we find a significant positive relation between a firm's U.S. advertising spending and its contemporaneous foreign cash flow. This relation holds even after controlling for factors that should be related to the optimal level of U.S. advertising, and it is stronger for subsets of firms that we expect to be relatively more financially constrained. Our evidence supports the hypothesis that there is a causal and economically substantial link between a firm's cash flow and its investment decisions, even for intangible investments such as advertising. Our evidence also suggests that firms have active internal capital markets in which capital is moved across geographic regions.
Number of Pages in PDF File: 55 Keywords: Investment, advertising, cash flow, financial constraints, internal capital markets JEL Classification: G31, G32, D92, F23, M37 working papers seriesDate posted: March 20, 2006Suggested CitationContact Information
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