Review of Financial Studies · 2007 · 1.6K citations · 53 references
BusinessEconomicsFinanceCorporate FinanceFinancial EconomicsInvestment ManagementAsset AllocationFinancial ResourcesFinancial RiskInvestmentInvestment TheoryLiquidity RiskAgency Conflicts Between BondholdersConstraintsFinancial Leverage EffectsFirm Financing ConstraintsFirms' Investment Decisions Under Flotation CostsInvestment-cash Flow SensitivityValue Maximization Under Capital Constraints
Pledgeable assets support more borrowing, which allows for further investment in pledgeable assets. We use this credit multiplier to identify the impact of financing frictions on corporate investment. The multiplier suggests that investment–cash flow sensitivities should be increasing in the tangibility of firms' assets (a proxy for pledgeability), but only if firms are financially constrained. Our empirical results confirm this theoretical prediction. Our approach is not subject to the Kaplan and Zingales (1997) critique, and sidesteps problems stemming from unobservable variation in investment opportunities. Thus, our results strongly suggest that financing frictions affect investment decisions.
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Large Sample Properties of Generalized Method of Moments Estimators
Lars Peter Hansen · Econometrica · 1982 · 13.9K citations
Financing Constraints and Corporate Investment
Steven M. Fazzari, R. Glenn Hubbard, Bruce C. Petersen et al. · Brookings Papers on Economic Activity · 1988 · 5.6K citations
Nobuhiro Kiyotaki, John Moore · Journal of Political Economy · 1997 · 4.7K citations