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New vs. used capital investment decisions under liquidity constraints

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  • Konstantinos Drakos
  • Eleftherios Goulas
  • Christos Kallandranis

Abstract

Informationally driven capital market imperfections may lead to a systematic relation between expenditure on used capital and the severity of liquidity constraints. We project used capital outlays on internal finance across sectors of different sizes documenting that the sensitivity of used capital investment to cash flow is higher for financially constrained sectors.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.

Volume (Year): 3 (2007)
Issue (Month): 1 (January)
Pages: 15-18

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Handle: RePEc:taf:apfelt:v:3:y:2007:i:1:p:15-18

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  1. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
  2. Audretsch, David B. & Elston, Julie Ann, 2000. "Does firm size matter? Evidence on the impact of liquidity constraint on firm investment behavior in Germany," HWWA Discussion Papers 113, Hamburg Institute of International Economics (HWWA).
  3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  4. Audretsch, David B & Elston, Julie Ann, 1994. "Does Firm Size Matter? Evidence on the Impacts of Liquidity Constraints on Firm Investment Behaviour in Germany," CEPR Discussion Papers 1072, C.E.P.R. Discussion Papers.
  5. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1993. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  7. Fabio Schiantarelli & Xiaoqiang Hu, 1994. "Investment and Financing Constraints: A Switching Regression Approach Using U.S. Firm Panel Data," Boston College Working Papers in Economics 284., Boston College Department of Economics.
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