Investment-cash Flow Sensitivities are Not Valid Measures of Financing Constraints PDF Download
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Author: Steven N. Kaplan Publisher: ISBN: Category : Cash flow Languages : en Pages : 24
Book Description
Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.
Author: Steven N. Kaplan Publisher: ISBN: Category : Cash flow Languages : en Pages : 24
Book Description
Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.
Author: Javier Sánchez Vidal Publisher: ISBN: Category : Languages : en Pages : 22
Book Description
This experiment uses a Monte Carlo simulation designed to test whether the problems about the use of accounting identities are present in the model of Fazzari, Hubbard, and Petersen (1988). The Monte Carlo simulation creates 10,000 sets of randomly generated cash flows, Tobin's Q, and an error term variables, which in turn shape an investments variable that depends on them. These two variables are also related through an accounting semi identity or accounting partial identity (API). OLS estimations verify that estimated coefficients do not represent reality. The closer the data are to the accounting identity, the less the regression will tell about the causal relation.
Author: Robert M. Bushman Publisher: ISBN: Category : Languages : en Pages : 52
Book Description
An important, unresolved issue in finance is whether the sensitivity of capital investment to internally generated cash flows reflects the impact of binding financing constraints on firms' investment decisions. We contribute new insight to this debate by providing systematic evidence that investment-cash flow sensitivity (ICFS) primarily reflects the fundamental connection between capital investment and working capital investment as interrelated manifestations of firm growth. We decompose the cash flow measure used in the literature, earnings before depreciation (EBD), into cash flow from operations (CFO), and working capital accruals (WCACC) which reflects net investment in working capital items like inventory and accounts receivable. We demonstrate that ICFS is driven by the natural co-movement between fixed investment and the working capital investment aspect of WCACC as complementary factors of production. In contrast, investment-CFO sensitivity is often negative and tends to decrease as financing constraints increase, inconsistent with CFO serving as a source of investment financing for constrained firms. What does this growth interpretation imply about the connection between ICFS and financing constraints? We argue that the nature of ICFS depends directly on the underlying catalyst of firm growth. If investment is driven solely by a reduction in the cost wedge between external and internal financing, ICFS reflects the investment consequences of this reduction in financing constraints. However, if capacity expansion is instead driven by macro shifts in the opportunity cost of firms' internal funds, shocks in investment opportunities, empire building behavior, or managerial irrationality, ICFS will not reflect financing frictions but rather the natural consequence of capacity expansion on the co-movement of fixed and working capital investment.
Author: Mr.Vadim Khramov Publisher: International Monetary Fund ISBN: 1475554273 Category : Business & Economics Languages : en Pages : 28
Book Description
This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm's assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms' balance sheets. This paper deepens our understanding of firms' investment behavior.
Author: Kose John Publisher: Emerald Group Publishing ISBN: 0857249150 Category : Business & Economics Languages : en Pages : 210
Book Description
Presents research on corporate governance from a number of countries across the world, including the United States, Spain, Malaysia, Israel and others. This title examines many important corporate governance mechanisms, such as board characteristics, ownership structure, legal protection of shareholders, and annual general meetings.
Author: Steven N. Kaplan
Author: Steven N. Kaplan
Author: Javier Sánchez Vidal
Author: 
Author: Steven N. Kaplan
Author: Guiying Wu
Author: Robert M. Bushman
Author: Mr.Vadim Khramov
Author: 
Author: Stephen R. Bond
Author: Kose John