Financial Constraints and Investment: The Swiss Case
27 Pages Posted: 27 Sep 2001
Date Written: April 2001
We study the empirical link that exists between investment and cash flow in the Swiss financial market. We follow the standard method introduced by Fazarri, Hubbard and Peterson (1988), with two major improvements. The firms' classification method is dynamic, and the estimation procedure allows for testing differences between groups. We pay particular attention to two aspects: information asymmetry and the business cycle. First, due to local particularities, Swiss firms can be differentiated according to precise measures of asymmetric information, leading to a non-ambiguous interpretation of the link between investment-cash flow sensitivities and the intensity of financial constraints. Second, the sample is split into two sub-periods: a boom and a recession period.
JEL Classification: D82, G31, G32
Suggested Citation: Suggested Citation