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Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints

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  • Steven N. Kaplan
  • Luigi Zingales

Abstract

Work by Kaplan and Zingales provides both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard, and Petersen {this Journal} criticize those findings. In this note we explain how the Fazzari et al. criticisms are either very supportive of the claims in earlier work by Kaplan and Zingales or incorrect. We conclude with a discussion of unanswered questions. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Bibliographic Info

Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 115 (2000)
Issue (Month): 2 (May)
Pages: 707-712

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Handle: RePEc:tpr:qjecon:v:115:y:2000:i:2:p:707-712

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  1. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, 04.
  2. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
  3. Steven N. Kaplan & Luigi Zingales, 1995. "Do Financing Constraints Explain Why Investment is Correlated with Cash Flow?," NBER Working Papers 5267, National Bureau of Economic Research, Inc.
  4. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
  5. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  6. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May.
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