Financial Constraints, Liquidity Management and Investment

Timothy J. Riddiough and Zhonghua Wu

Real Estate Economics, 2009, vol. 37, issue 3, 447-481

Abstract: Investment and liquidity management are analyzed in a sector in which firms are exogenously cash constrained and empirical estimates of Tobin's q provide reliable measures of investment opportunity. Across the entire sector, we document substantial realized investment as well as high investment sensitivity to q. Investment is also sensitive to measures of financial market frictions, suggesting that constraints on retention of cash flow distort investment decisions. Liquidity is managed through dividend policy and access to short‐term bank finance, in which bank lines of credit smooth variation in available cash flow and accelerate investment. Using the Kaplan–Zingales method for measuring the degree of financial constraint, we identify substantial differences between investment and liquidity management policies of firms, in which more (less) financially constrained firms in our sample exhibit high (low) investment and liquidity management sensitivity to variables that measure financial market frictions.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://doi.org/10.1111/j.1540-6229.2009.00248.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:reesec:v:37:y:2009:i:3:p:447-481

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1080-8620

Access Statistics for this article

Real Estate Economics is currently edited by Crocker Liu, N. Edward Coulson and Walter Torous

More articles in Real Estate Economics from American Real Estate and Urban Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().