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Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity

  • Robert E. Carpenter

    (Emory University)

  • Steven M. Fazzari

    (Washington University)

  • Bruce C. Petersen

    (Washington University)

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal finance hypotheses. To discriminate between hypotheses, we extend existing methodology by focusing on time and sectoral heterogeneity in high-frequency (quarterly) firm data. We find evidence consistent with all three financing constraint channels, but the internal finance hypothesis appears to best explain the broad set of facts about the amplitude of inventory investment and its sectoral and time heterogeneity.

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Paper provided by EconWPA in its series Macroeconomics with number 9510001.

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Length: 50 pages
Date of creation: 09 Oct 1995
Date of revision: 09 Oct 1995
Handle: RePEc:wpa:wuwpma:9510001
Note: Type of Document - word for windows v 6.0, binary; prepared on IBM PC; to print on HP/Laserjet 3; pages: 50 ; figures: five (request from authors)
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