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The Impact of Firm Collateral on Knowledge Intensive Consulting Firms

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  • Martinsson, Gustav

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    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

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    Abstract

    This paper explores how sales and employment for knowledge intensive consulting firms are correlated. I apply theory on cash flow-investment sensitivities, mostly applied to manufacturing firms, to a less capital intensive part of the economy. Therefore the knowledge intensive consulting sector is investigated but instead of analyzing the investment in plant and machinery this analysis regards the investment in skilled employees. The argument of Kaplan & Zingales (1997) regarding low cash flow-investment sensitivity being a sign of financial distress is applied. The main result is that firms less likely to be financially constrained display 60 percent higher sales-employment sensitivities than firms more likely to be financially constrained. The results are estimated from a sample comprising 23,500 Swedish knowledge intensive consulting firms.

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    Bibliographic Info

    Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 135.

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    Length: 23 pages
    Date of creation: 09 Sep 2008
    Date of revision:
    Handle: RePEc:hhs:cesisp:0135

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    Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
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    Related research

    Keywords: Incomplete markets; asymmetric information; knowledge intensive business services; economic development;

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    1. Martin Andersson & Karin Hellerstedt, 2009. "Location Attributes and Start-ups in Knowledge-Intensive Business Services," Industry and Innovation, Taylor & Francis Journals, vol. 16(1), pages 103-121.
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    3. Aghion, P. & Askenazy, P. & Berman, N. & Cette, G. & Eymard, L., 2008. "Credit Constraints and the Cyclicality of R&D Investment: Evidence from France," Working papers, Banque de France 198, Banque de France.
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    12. Martinsson, Gustav, 2008. "Firm Collateral and the Cyclicality of Knowledge Intensity," Working Paper Series in Economics and Institutions of Innovation, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies 134, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    13. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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