Investment-Cash Flow Sensitivities are Not Valid Measures of Financing Constraints
7 Pages Posted: 17 May 2000 Last revised: 2 Apr 2001
Date Written: April 2000
Kaplan and Zingales  provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen  criticize those findings. In this note, we explain how the Fazzari et al.  criticisms are either very supportive of the claims in Kaplan and Zingales  or incorrect. We conclude with a discussion of unanswered questions.
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