Abstract
While most models with financial market imperfections predict investment by financially constrained firms to be more sensitive to financial variables, contracting models argue that investment by such firms should be more sensitive to fundamental determinants of investment because fundamentals capture both investment opportunities and changes in the financial position. By first grouping U.S. manufacturing firms as either financially constrained or unconstrained, this paper examines systematic differences in investment/fundamental sensitivities. The findings show that, as expected of contracting models, investment by financially constrained firms is more responsive to fundamentals. These fundamentals are captured by two prominent empirical measures: profitability shocks and mandated investment rate.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 25-59 |
| Number of pages | 35 |
| Journal | Journal of Economics and Business |
| Volume | 75 |
| DOIs | |
| State | Published - Jan 1 2014 |
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All Science Journal Classification (ASJC) codes
- Business, Management and Accounting(all)
- Economics and Econometrics
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Fixed investment/fundamental sensitivities under financial constraints. / Bayraktar, Nihal.
In: Journal of Economics and Business, Vol. 75, 01.01.2014, p. 25-59.Research output: Contribution to journal › Article
TY - JOUR
T1 - Fixed investment/fundamental sensitivities under financial constraints
AU - Bayraktar, Nihal
PY - 2014/1/1
Y1 - 2014/1/1
N2 - While most models with financial market imperfections predict investment by financially constrained firms to be more sensitive to financial variables, contracting models argue that investment by such firms should be more sensitive to fundamental determinants of investment because fundamentals capture both investment opportunities and changes in the financial position. By first grouping U.S. manufacturing firms as either financially constrained or unconstrained, this paper examines systematic differences in investment/fundamental sensitivities. The findings show that, as expected of contracting models, investment by financially constrained firms is more responsive to fundamentals. These fundamentals are captured by two prominent empirical measures: profitability shocks and mandated investment rate.
AB - While most models with financial market imperfections predict investment by financially constrained firms to be more sensitive to financial variables, contracting models argue that investment by such firms should be more sensitive to fundamental determinants of investment because fundamentals capture both investment opportunities and changes in the financial position. By first grouping U.S. manufacturing firms as either financially constrained or unconstrained, this paper examines systematic differences in investment/fundamental sensitivities. The findings show that, as expected of contracting models, investment by financially constrained firms is more responsive to fundamentals. These fundamentals are captured by two prominent empirical measures: profitability shocks and mandated investment rate.
UR - http://www.scopus.com/inward/record.url?scp=84902972650&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84902972650&partnerID=8YFLogxK
U2 - 10.1016/j.jeconbus.2014.05.001
DO - 10.1016/j.jeconbus.2014.05.001
M3 - Article
AN - SCOPUS:84902972650
VL - 75
SP - 25
EP - 59
JO - Journal of Economics and Business
JF - Journal of Economics and Business
SN - 0148-6195
ER -