Corporate Investment with Financial Constraints: Sensitivity of Investment to Funds from Voluntary Asset Sales

Gayane Hovakimian and Sheridan Titman

Journal of Money, Credit and Banking, 2006, vol. 38, issue 2, 357-374

Abstract: We examine the importance of financial constraints for firm investment by looking at the relationship between investment expenditures and proceeds from voluntary asset sales. Asset sales provide a cleaner indicator of liquidity than cash flows since it appears not to be positively correlated with investment opportunities. The cross-sectional differences in firm investment are examined using an endogenous switching regression model with unknown sample separation. We find that cash obtained from asset sales is a significant determinant of corporate investment and that the sensitivity of investment to proceeds from asset sales is significantly stronger for firms that are likely to be financially constrained.

Date: 2006
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Working Paper: Corporate Investment with Financial Constraints: Sensitivity of Investment to Funds from Voluntary Asset Sales (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:38:y:2006:i:2:p:357-374

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