Capital-Market Imperfections and Investment

65 Pages Posted: 14 Jul 2000 Last revised: 4 Apr 2008

See all articles by R. Glenn Hubbard

R. Glenn Hubbard

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: April 1997


Over the past decade, a number of researchers have extended conventional models of business fixed investment to incorporate a role for financial constraints' in determining investment. This paper reviews developments and challenges in this empirical research, and uses advances in models of information and incentive problems to motivate those developments and challenges. First, I describe analytical underpinnings of models of capital-market imperfections in the investment process, and illustrate the principal testable implications of those models. Second, I motivate tests and describe and critique existing empirical studies. Third, the review considers applications of the underlying models to a range of investment activities, including inventory investment, R&D, employment demand, pricing by imperfectly competitive firms, business formation and survival, and risk management. Fourth, I discuss implications of this research program for analysis of effects of investment on monetary policy and tax policy. Finally, I examine some potentially fruitful avenues for future research.

Suggested Citation

Hubbard, Robert Glenn, Capital-Market Imperfections and Investment (April 1997). NBER Working Paper No. w5996. Available at SSRN:

Robert Glenn Hubbard (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States


National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics