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Financial Constraints and Investment: A Quasi-Experiment in the Electricity Sector

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Abstract

We study the impact of financial constraints on the investments behavior of electricity generating utilities. The pollution permit allocation rule of the US SO2 regulation introduced variation in internally available funds, in a industry where firms are otherwise very similar. We use this exogenous variation to identify the relationship between cash flow an investment. Consistent with a financial constraints explanation, this relationship is on average positive but decreases with firm size.

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  • Evangelina Dardati & Julio Riutort, 2013. "Financial Constraints and Investment: A Quasi-Experiment in the Electricity Sector," ILADES-UAH Working Papers inv293, Universidad Alberto Hurtado/School of Economics and Business.
    • Handle: RePEc:ila:ilades:inv293
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