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Exploring nonlinearities between investment and internal funds: Evidence of the U-shaped investment curve

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  • Borri, Karine T.
  • Martins-Filho, Carlos
  • Kalatzis, Aquiles E.G.

Abstract

We provide new empirical evidence of the relationship between the availability of internal funds and firms’ investment. By employing a semi-parametric fixed effect model, we estimate a U-shaped curve relating investment and internal funds. Our results highlight the importance of allowing for nonlinearities when modeling changes in internal funds and investment, and show that R&D expenses play a critical role on firms’ investment under financial constraints

Suggested Citation

  • Borri, Karine T. & Martins-Filho, Carlos & Kalatzis, Aquiles E.G., 2022. "Exploring nonlinearities between investment and internal funds: Evidence of the U-shaped investment curve," Economics Letters, Elsevier, vol. 218(C).
    • Handle: RePEc:eee:ecolet:v:218:y:2022:i:c:s0165176522002452
    DOI: 10.1016/j.econlet.2022.110713
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    Cited by:

    1. Kadzima, Marvelous & Machokoto, Michael, 2023. "A semi-parametric analysis of the cash flow sensitivity of cash," Finance Research Letters, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Investment decision; Financial constraints; Semi-parametric model; R&D investment;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G3 - Financial Economics - - Corporate Finance and Governance

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