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

Rotterdam School of Management, Erasmus University

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Date Written: 19 2001 1,

Abstract

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,). ERIM Report Series Reference No. ERS-2001-86-F&A. Available at SSRN: https://ssrn.com/abstract=370942

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
334
rank
87,862
Abstract Views
1,930
PlumX Metrics