Financial Constraints and Investment: A Quasi-Experiment in the Electricity Sector

Evangelina Dardati and Julio Riutort

ILADES-UAH Working Papers from Universidad Alberto Hurtado/School of Economics and Business

Abstract: We study the impact of financial constraints on the investments behavior of electricity generating utilities. The pollution permit allocation rule of the US SO2 regulation introduced variation in internally available funds, in a industry where firms are otherwise very similar. We use this exogenous variation to identify the relationship between cash flow an investment. Consistent with a financial constraints explanation, this relationship is on average positive but decreases with firm size.

Pages: 37 pages
Date: 2013-10
New Economics Papers: this item is included in nep-ene
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