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Does Firms` Financial Status Affect Plant-Level Investment and Exit Decision

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  • Winter, Joachim

    () (Mannheim Research Institute for the Economics of Aging (MEA))

Abstract

This paper investigates the influence of a firm's financial status on the within-firm allocation of funds, reflected in its plant-level investment and exit decisions. In the empirical analysis, financial status is measured by both standard measures and an indicator variable recently suggested by Kaplan and Zingales. Based on these firm-level financial variables and on plant-level investment and production data from the U.S. Census Bureau's Longitudinal Research Database (LRD), econometric models of plant operating regimes are estimated which summarize investment and exit decisions. The empirical evidence supports the view that firm-level financial status affects investment and market exit decisions observed at the plant level.

Suggested Citation

  • Winter, Joachim, 1998. "Does Firms` Financial Status Affect Plant-Level Investment and Exit Decision," Sonderforschungsbereich 504 Publications 98-48, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:98-48 Note: Financial Support from Deutsche Forschungsgemeinschaft, SFB 504 at the University of Mannheim, is gratefully acknowledged.
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    References listed on IDEAS

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    1. 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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    5. 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, Oxford University Press, vol. 115(2), pages 695-705.
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    8. Winter, Joachim, . "Investment and Exit Decisions at the Plant Level: A Dynamic Programming Approach," Monographs in Economics, University of Munich, Department of Economics, number 19732.
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    27. repec:crs:wpaper:9515 is not listed on IDEAS
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    Cited by:

    1. Januszewski, Silke I. & Koke, Jens & Winter, Joachim K., 2002. "Product market competition, corporate governance and firm performance: an empirical analysis for Germany," Research in Economics, Elsevier, vol. 56(3), pages 299-332, September.
    2. Prabal De & Priya Nagaraj, 2014. "Productivity and firm size in India," Small Business Economics, Springer, vol. 42(4), pages 891-907, April.
    3. Bhattacharjee, A. & Higson, C. & Holly, S. & Kattuman, P., 2004. "Business Failure in UK and US Quoted Firms: Impact of Macroeconomic Instability and the Role of Legal Institutions," Cambridge Working Papers in Economics 0420, Faculty of Economics, University of Cambridge.
    4. Stanley C. W. Salvary, 2004. "The Neoclassical Model, Corporate Retained Earnings, And The Regional Flows Of Financial Capital," Urban/Regional 0410007, EconWPA.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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