Internal Finance and Firm Investment

Robert Glenn Hubbard (), Anil Kashyap () and Toni Whited ()

No 4392, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the neoclassical investment model using a panel of U.S. manufacturing firms. The standard model with no financing constraints cannot be rejected for firms with high (pre-sample) dividend payouts. However, it is decisively rejected for firms with low (pre-sample) payouts (firms we expect to face financing constraints). Hem, investment is sensitive to both firm cash flow and macroeconomic credit conditions, holding constant investment opportunities. Sample splits based on firm size or maturity do not produce such distinctions. The latter comparison identifies firms where "free-cash-flow" problems might be expected to produce correlations between investment and cash flow.

JEL-codes: E22 G31 (search for similar items in EconPapers)
Date: 1995-09
Note: CF
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