EconPapers    
Economics at your fingertips  
 

Investment decisions with financial constraints. Evidence from Spanish firms

Jacinto Marabel Romo

Quantitative Finance, 2014, vol. 14, issue 6, 1079-1095

Abstract: This paper analyses to what extent the rejection of the investment dynamics implied by the Euler equation model with quadratic and symmetric adjustment costs can be attributed to the fact that the investment behavior of some firms in some periods is financially constrained by the availability of internal funds. I use a hierarchy of finance model which assumes that internally generated finance for investment is available at a lower cost than external finance, and implies the existence of distinct financial regimes depending on the firm's financial policy. I estimate the empirical investment equation derived from the model using GMM, taking into account the endogeneity of the selection and allowing for debt finance, imperfect competition and the existence of a possible measurement error in the user cost of capital. The empirical results suggest that the Euler equation model is not seriously misspecified for a sub-sample of firms pursuing a particular financial policy.

Date: 2014
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2013.785635 (text/html)
Access to full text is restricted to subscribers.

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:taf:quantf:v:14:y:2014:i:6:p:1079-1095

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2019-10-06
Handle: RePEc:taf:quantf:v:14:y:2014:i:6:p:1079-1095