Document Server@UHasselt >
Research >
Research publications >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1942/8417

Title: Financial constraints and investment: An alternative empirical framework
Authors: CLEARY, Sean
Issue Date: 2008
Citation: Anales de Estudios Economicos y Empresariales, 17, p. 9-41
Abstract: In the empirical literature on financial constraints, firms are usually assigned to distinct groups, according to whether or not they are supposed to be financially constrained (FC). Several recent empirical papers studying the relationship between firms’ cash flows and investment, have found mixed results regarding whether or not more FC firms show higher or lower sensitivity of investment to cash flows (CFSI). We show that these mixed results may be attributable to the use of different “ex-ante” sample-splitting schemes. In response to these issues, we develop a novel research strategy that allows for estimating firm-specific investment-cash flow sensitivities and identifying the whole distribution of sensitivities across firms. Specifically, we apply entropy-based estimation methods, which outperform classical estimation methods under various general conditions. Our empirical results, based on a large panel-data set of U.S. firms, demonstrate some of the limitations of prevailing classification schemes. The approach we propose offers new and interesting prospects for re-examining the existing empirical evidence on financial constraints.
URI: http://hdl.handle.net/1942/8417
ISSN: 1064-6345
Category: A2
Type: Journal Contribution
Appears in Collections: Research publications

Files in This Item:

Description SizeFormat
N/A764.95 kBAdobe PDF

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.