International Corporate Investment and the Role of Financial Constraints

42 Pages Posted: 12 Jun 2002

See all articles by W. Sean Cleary

W. Sean Cleary

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science; York University - Schulich School of Business

Date Written: March 2002

Abstract

International evidence over the 1987-1997 period suggests that the capital expenditures of firms that are financially constrained are much less sensitive to the availability of internal funds than unconstrained firms. The evidence is particularly strong when firms are classified according to financial health, but is also prevalent for groups formed according to dividend behavior and firm size. The results provide strong support for the generality of the results of Kaplan and Zingales (1997) and Cleary (1999). A major reason for the weak investment-cash flow sensitivity displayed by unhealthy firms is that they appear to be busy building up financial slack, which has long-term value, as postulated by Myers and Majluf (1984).

JEL Classification: E22, E44, G31

Suggested Citation

Cleary, W. Sean, International Corporate Investment and the Role of Financial Constraints (March 2002). Available at SSRN: https://ssrn.com/abstract=313964 or http://dx.doi.org/10.2139/ssrn.313964

W. Sean Cleary (Contact Author)

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science ( email )

Halifax, Nova Scotia B3H 3C3
Canada

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 (Phone)
416-736-5687 (Fax)

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