Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints
Kaplan and Zingales  provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen  criticize those findings. In this note, we explain how the Fazzari et al.  criticisms are either very supportive of the claims in Kaplan and Zingales  or incorrect. We conclude with a discussion of unanswered questions.
|Date of creation:||Apr 2000|
|Date of revision:|
|Publication status:||Published as "Do Investment-Cash Flow Sensitivities Provide Useful Measuresof Financing Constraints?", Quarterly Journal of Economics, Vol. 107, no. 1(February 1997): 16-215.|
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"Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups,"
The Quarterly Journal of Economics,
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2387, National Bureau of Economic Research, Inc.
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- Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May.
- Steven N. Kaplan & Luigi Zingales, 1995. "Do Financing Constraints Explain Why Investment is Correlated with Cash Flow?," NBER Working Papers 5267, National Bureau of Economic Research, Inc.
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