Private Investment and Cash Flow Relationship Revisited: Capital Market Imperfections and Financialization of Real Sectors in Emerging Markets

Firat Demir

MPRA Paper from University Library of Munich, Germany

Abstract: Based on the Euler equation approach, the paper analyzes the impacts of availability of internal funds on fixed investment spending in the presence of multiple investment options. It is argued that after financial liberalization real sector firms face a portfolio allocation problem between fixed and financial investments. Therefore, depending on the respective rates of returns the availability of internal funds may be a necessary but not sufficient condition for financing real investment projects. The empirical results using firm level data for Mexico and Turkey confirm this hypothesis and suggest that profits from fixed and financial assets have differential effects on fixed investment spending.

Keywords: Private Investment; Financing Constraints; Cash Flow; Portfolio Choice (search for similar items in EconPapers)
JEL-codes: C33 E22 E44 G11 O16 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-cfn, nep-cwa and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/3081/1/MPRA_paper_3081.pdf original version (application/pdf)

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:pra:mprapa:3081

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().