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Investment Spending in the Netherlands: Asymmetric Information or Managerial Discretion?

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  • Hans Degryse
  • Abe De Jong

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 underpin the positive relation between cash-flow and investment spending. This relation is significantly 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.

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File URL: http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps01/Dps0114.pdf
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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0114.

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Date of creation: Mar 2001
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Handle: RePEc:ete:ceswps:ces0114

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Cited by:
  1. John Hutchinson & Ana Xavier, 2006. "Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy," Small Business Economics, Springer, vol. 27(2), pages 169-179, October.
  2. Jong, A. de, 2001. "The Disciplining Role of Leverage in Dutch Firms," Discussion Paper 2001-48, Tilburg University, Center for Economic Research.

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