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Asymmetric Effects of the Financial Crisis

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  • Vadim Khramov
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    Abstract

    This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm''s assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms'' balance sheets. This paper deepens our understanding of firms'' investment behavior.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/97.

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    Length: 28
    Date of creation: 01 Apr 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/97

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    Related research

    Keywords: Financial crisis; Asset management; Capital; Economic models; Global Financial Crisis 2008-2009; cash flow; investment-cash flow sensitivity; investment-cash flow sensitivities; pre-crisis; bond; global financial crisis; derivative; stock of capital; cash flows; financial markets; financial resources; cash flow increases; partial derivative; financial economics; equity market;

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    1. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    2. Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2011. "Liquidity Management and Corporate Investment During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1944-1979.
    3. Allayannis, George & Mozumdar, Abon, 2004. "The impact of negative cash flow and influential observations on investment-cash flow sensitivity estimates," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 901-930, May.
    4. Cleary, Sean & Povel, Paul & Raith, Michael, 2007. "The U-Shaped Investment Curve: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(01), pages 1-39, March.
    5. Vladimir A. Gatchev & Todd Pulvino & Vefa Tarhan, 2010. "The Interdependent and Intertemporal Nature of Financial Decisions: An Application to Cash Flow Sensitivities," Journal of Finance, American Finance Association, vol. 65(2), pages 725-763, 04.
    6. Sangeeta Pratap, 2000. "Do Adjustment Costs Explain Investment-Cash Flow Insensitivity?," Computing in Economics and Finance 2000 315, Society for Computational Economics.
    7. Brown, James R. & Petersen, Bruce C., 2009. "Why has the investment-cash flow sensitivity declined so sharply? Rising R&D and equity market developments," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 971-984, May.
    8. Rousseau, Peter L. & Kim, Jong Hun, 2008. "A flight to Q? Firm investment and financing in Korea before and after the 1997 financial crisis," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1416-1429, July.
    9. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, 04.
    10. Aydogan Alti, 2003. "How Sensitive Is Investment to Cash Flow When Financing Is Frictionless?," Journal of Finance, American Finance Association, vol. 58(2), pages 707-722, 04.
    11. Christopher F Baum & Mark E Schaffer & Steven Stillman, 2002. "IVREG2: Stata module for extended instrumental variables/2SLS and GMM estimation," Statistical Software Components S425401, Boston College Department of Economics, revised 28 Jul 2014.
    12. Murillo Campello & John Graham & Campbell R. Harvey, 2009. "The Real Effects of Financial Constraints: Evidence from a Financial Crisis," NBER Working Papers 15552, National Bureau of Economic Research, Inc.
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