Investment, Financial Factors and Business Fluctuations
This paper investigates the relationship between investment and internal finance by addressing two recent topics within the theory of imperfect capital markets: the financial accelerator hypothesis and the controversy over the source of the investment-cash flow sensitivity. Using a panel of Italian companies, we estimate an empirical model of investment which adds cash flow as a proxy for the availability of internal funds. By testing for parameter constancy across two sub-samples of independent and group-affiliated firms, we find that the relationship between investment and cash flow is more likely to be explained by the hypothesis of asymmetric information on capital markets (under-investment) than by the managerial discretion view (over-investment). Our results also suggest that, at least for independent companies, the investment-cash flow relationship is counter-cyclical, as predicted by the theory of the financial accelerator.
|Length:||25 pages Keywords : Investimenti, Asimmetrie Informative, Discrezionalità dei manager|
|Date of creation:||Dec 1997|
|Date of revision:|
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