Investment, Finacial Factors and Cash Flow: Evidence From UK Panel Data
AbstractIn this paper we provide some econometric evidence on the impact of financial factors like cash flow, debt and stock measures of liquidity on the investment decisions of U. K. firms. These variables are introduced via an extension of the Q model of investment which explicitly includes agency/financial distress costs. We discuss if the significance of cash flow may be due to the fact that it proxies for output or because it is a better measure of market fundamentals than Q. Moreover we investigate if the effect of financial factors varies across different types of firms, according to size, age, and type of industry (growing and declining). We analyze the determinants of the magnitude of the cash flow effect and explain why caution must be exercised in attributing inter-firm differences only to differences in the importance of agency or financial distress costs.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3116.
Date of creation: Sep 1989
Date of revision:
Publication status: published as Michael Devereux, Fabio Schiantarelli. "Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data," in R. Glenn Hubbard, editor, "Asymmetric Information, Corporate Finance, and Investment" University of Chicago Press, 1990 (1990)
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- Michael Devereux & Fabio Schiantarelli, 1990. "Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 279-306 National Bureau of Economic Research, Inc.
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