Testing financing constraints on firm investment using variable capital

Andrea Caggese

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We consider a dynamic multifactor model of investment with financing imperfections, adjustment costs and fixed and variable capital. We use the model to derive a test of financing constraints based on a reduced form variable capital equation. Simulation results show that this test correctly identifies financially constrained firms even when the estimation of firms’ investment opportunities is very noisy. In addition, the test is well specified in the presence of both concave and convex adjustment costs of fixed capital. We confirm empirically the validity of this test on a sample of small Italian manufacturing companies.

Keywords: Financing Constraints; Investment (search for similar items in EconPapers)
JEL-codes: D21 G31 (search for similar items in EconPapers)
Date: 2003-02, Revised 2006-08
New Economics Papers: this item is included in nep-bec and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Testing Financing Constraints on Firm Investment Using Variable Capital (2015)
Journal Article: Testing financing constraints on firm investment using variable capital (2007)
Working Paper: Testing financial constraints on firm investment using variable capital (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1009

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