Financial Constraints, Asset Tangibility, and Corporate Investment

Posted: 25 Jun 2008

See all articles by Heitor Almeida

Heitor Almeida

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

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: 2007

Abstract

Pledgeable assets support more borrowing, which allows for further investment in pledgeable assets. We use this credit multiplier to identify the impact of financing frictions on corporate investment. The multiplier suggests that investment cash flow sensitivities should be increasing in the tangibility of firms' assets (a proxy for pledgeability), but only if firms are financially constrained. Our empirical results confirm this theoretical prediction. Our approach is not subject to the Kaplan and Zingales () critique, and sidesteps problems stemming from unobservable variation in investment opportunities. Thus, our results strongly suggest that financing frictions affect investment decisions.

Keywords: G31

Suggested Citation

Almeida, Heitor and Campello, Murillo, Financial Constraints, Asset Tangibility, and Corporate Investment (2007). Review of Financial Studies, Vol. 20, Issue 5, pp. 1429-1460, 2007. Available at SSRN: https://ssrn.com/abstract=1151165 or http://dx.doi.org/10.1093/rfs/hhm019

Heitor Almeida (Contact Author)

University of Illinois at Urbana-Champaign ( email )

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Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138

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