New vs. used capital investment decisions under liquidity constraints

Konstantinos Drakos, Eleftherios Goulas and Christos Kallandranis ()

Applied Financial Economics Letters, 2007, vol. 3, issue 1, pages 15-18

Abstract: Informationally driven capital market imperfections may lead to a systematic relation between expenditure on used capital and the severity of liquidity constraints. We project used capital outlays on internal finance across sectors of different sizes documenting that the sensitivity of used capital investment to cash flow is higher for financially constrained sectors.

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