Investment-Cash Flow Sensitivities are Not Valid Measures of Financing Constraints

7 Pages Posted: 17 May 2000 Last revised: 2 Apr 2001

See all articles by Steven N. Kaplan

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: April 2000

Abstract

Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.

Suggested Citation

Kaplan, Steven Neil and Zingales, Luigi, Investment-Cash Flow Sensitivities are Not Valid Measures of Financing Constraints (April 2000). NBER Working Paper No. w7659, Available at SSRN: https://ssrn.com/abstract=228133

Steven Neil Kaplan (Contact Author)

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University of Chicago - Polsky Center for Entrepreneurship

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Luigi Zingales

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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