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International Finance and Firm Investment

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Author Info

  • Hubbard, R Glenn
  • Kashyap, Anil K
  • Whited, Toni M

Abstract

The authors examine the neoclassical investment model using a panel of U.S. manufacturing firms. The standard model with no financing constraints cannot be rejected for firms with high (presample) dividend payouts. However, it is decisively rejected for firms with low (presample) payouts (firms the authors expect to face financing constraints). Here, investment is sensitive both to firm cash flow and macroeconomic credit conditions, holding constant investment opportunities. Sample splits based on firm size or maturity do not produce such distinctions. The latter comparison identifies firms where 'free-cash-flow' problems might be expected to produce correlations between investment and cash flow. Copyright 1995 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 27 (1995)
Issue (Month): 3 (August)
Pages: 683-701

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Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:3:p:683-701

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Loayza, Norman & Palacios, Luisa, 1997. "Economic reform and progress in Latin America and the Caribbean," Policy Research Working Paper Series 1829, The World Bank.
  2. Jan Askildsen & Øivind Nilsen, 2010. "Markup cyclicality and input factor adjustments," Empirical Economics, Springer, vol. 38(2), pages 409-428, April.
  3. Emilio Colombo & Luca Stanca, 2003. "Investment Decisions and the Soft Budget Constraint: Evidence from Hungarian Manufacturing Firms," Working Papers 68, University of Milano-Bicocca, Department of Economics, revised Dec 2003.
  4. Eleni Angelopoulou & Heather D. Gibson, 2007. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK," Working Papers 53, Bank of Greece.
  5. Gayane Hovakimian & Sheridan Titman, 2003. "Corporate Investment with Financial Constraints: Sensitivity of Investment to Funds from Voluntary Asset Sales," NBER Working Papers 9432, National Bureau of Economic Research, Inc.
  6. J. Christina Wang, 2006. "Financial innovations, idiosyncratic risk, and the joint evolution of real and financial volatilities," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  7. Maria Angelica Arbelaez & Juan Jose Echavarria, 2002. "Credit, Financial Liberalization and Manufacturing Investment in Colombia," Research Department Publications 3145, Inter-American Development Bank, Research Department.

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