The controversy on whether the investment-cash flow sensitivity is a good indicator of financing constraints is still unsolved. We tackle it from many different angles cross-validating our analysis with both balance sheet and qualitative data on self declared credit rationing and financing constraints. Our qualitative information shows that (self declared) credit rationing is (weakly) related to both traditional a priori factors - such as firm size, age and location - and lenders’ rational decisions taken on the basis of their credit risk models. We use our qualitative information on firms which were denied (additional) credit to provide evidence relevant to the investment-cash flow sensitivity debate. Our results show that self declared credit rationing significantly discriminates between firms which possess or not such sensitivity, while a priori criteria do not. The same result does not apply when we consider the wider group of financially constrained firms (which do not seem to have a higher investment-cash flow sensitivity) supporting the more recent empirical evidence in this direction.
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