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Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity

Robert Carpenter (), Steven Fazzari () and Bruce Petersen ()

Macroeconomics from University Library of Munich, Germany

Abstract: Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal finance hypotheses. To discriminate between hypotheses, we extend existing methodology by focusing on time and sectoral heterogeneity in high-frequency (quarterly) firm data. We find evidence consistent with all three financing constraint channels, but the internal finance hypothesis appears to best explain the broad set of facts about the amplitude of inventory investment and its sectoral and time heterogeneity.

Keywords: inventory investment; cash flow; finance constraint; credit; monetary transmission (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 (search for similar items in EconPapers)
Date: 1995-10-09, Revised 1995-10-09
Note: Type of Document - word for windows v 6.0, binary; prepared on IBM PC; to print on HP/Laserjet 3; pages: 50 ; figures: five (request from authors)
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