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External Finance Constraints and the Intertemporal Pattern of Intermittent Investment

51 Pages Posted: 30 Sep 2002 Last revised: 5 Feb 2012

Toni M. Whited

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

Date Written: September 19, 2005

Abstract

Do external finance constraints affect the timing of large investment projects? Simulations of a model with fixed capital-stock adjustment costs establish the hypothesis that external finance constraints lower a firm's investment hazard: the probability of undertaking a large project today as a function of the time since the last project. Hazard model estimation that controls for productivity and adjustment costs supports this hypothesis. Small firms that distribute cash to shareholders have higher hazards than small firms that do not; very small firms have lower hazards than small firms; small stand-alone firms have significantly lower hazards than small segments of conglomerates.

Suggested Citation

Whited, Toni M., External Finance Constraints and the Intertemporal Pattern of Intermittent Investment (September 19, 2005). AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=334781 or http://dx.doi.org/10.2139/ssrn.334781

Toni M. Whited (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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