Internal capital markets and investment: do the cash flow constraints really bind?
AbstractLamont (1997) claims to find evidence of credit market imperfections that distort financing and investment decisions of a sample of oil-dependent firms, as investment by non-oil units fell when oil cash flow dropped. However, a simple test reveals that few of these firms behaved in a fashion consistent with binding cash flow constraints. In addition, most were cash rich. The data provide strong evidence against the hypothesis that investment decisions by non-oil units were significantly affected by oil cash flow, or that credit market imperfections are an important factor for this set of firms.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-39.
Date of creation: 1997
Date of revision:
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