Financial Constraints and Investment: the Swiss Case
Schweizerische Zeitschrift für Volkswirtschaft und Statistik / Revue Suisse d'Economie politique et de Statistique / Swiss Journal of Economics and Statistics, Volume 138, Issue 2, 2002, Pages 137-163
Keywords
financial constraints, investment, Tobin Q
Abstract
We study the empirical link that exists between investment-cash flow sensitivities and financial constraints in the Swiss financial market. We follow the standard approach introduced by FAZARRI, HUBBARD and PETERSON (1988), but improve it by using a dynamic classification of firms, a new estimation procedure, while paying particular attention to information asymmetry indicators. We observe that investment-cash flow sensitivities are homogeneous among firms during boom periods, as in KAPLAN and ZINGALES (1995), but heterogeneous during recession periods. The link between investment-cash flow sensitivities and the intensity of financing constraints is monotonically increasing, as in FAZARRI, HUBBARD and PETERSON (1988).