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Investment, irreversibility, and financing constraints in transition economies

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  • Alessandra Guariglia
  • John Tsoukalas
  • Serafeim Tsoukas

Abstract

Using a panel of 4223 Bulgarian, Czech, Polish, and Romanian firms, over the period 1998-2005, we show that financially constrained firms likely to face irreversibility constraints exhibit low and insignificant sensitivities of investment to cash flow. These firms typically use their cash flow to accumulate cash instead of investing. Our findings provide a new explanation for why some financially constrained firms may exhibit low investment-cash flow sensitivities. Specifically, controlling for investment irreversibility may matter for the interpretation of these sensitivities.

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Bibliographic Info

Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 10/03.

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Handle: RePEc:not:notecp:10/03

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/
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Keywords: Investment; Irreversibility; Cash flow; Cash accumulation; Capital market imperfections;

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