Investment and Internal Finance: Asymmetric Information or Managerial Discretion?

37 Pages Posted: 20 Feb 2003

See all articles by Abe de Jong

Abe de Jong

Monash University; University of Groningen; European Corporate Governance Institute (ECGI)

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB)

Date Written: 19 2001 1,


This paper examines the relation between cash-flow availability and investment spending in the Netherlands. In particular, we are interested whether managerial discretion and/or asymmetric information drive the positive relation between cash-flow and investment spending. This relation is positive for both firms with low and high investment opportunities. It is however significantly larger for firms with low investment opportunities suggesting that the managerial-discretion problem is most important in the Dutch setting. Effective corporate-governance may reduce this agency problem. Specific to the Netherlands, firms with low shareholder influence posit a higher cash-flow-investment sensitivity. The relevance of asymmetric information is confirmed as smaller firms and firms from information-sensitive industries show a larger cash-flow-investment sensitivity.

Keywords: Investment, financial constraints, asymmetric information, managerial discretion, The Netherlands

JEL Classification: M, G3, G31

Suggested Citation

de Jong, Abe and Degryse, Hans, Investment and Internal Finance: Asymmetric Information or Managerial Discretion? (19 2001 1,). Available at SSRN:

Abe De Jong

Monash University ( email )

900 Dandenong Rd
Room H3-56
Caulfield East, Victoria 3145

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University of Groningen ( email )

Postbus 72
9700 AB Groningen

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Hans Degryse (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000

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