Financing Constraints and Corporate Investment

  title={Financing Constraints and Corporate Investment},
  author={Steven M. Fazzari and Bruce C. Petersen and R. Glenn Hubbard},
Most empirical models of investment rely on the assumption that firms are able to respond to prices set in centralized securities markets (through the "cost of capital" or "q"). An alternative approach emphasizes the importance of cash flow as a determinant of investment spending, because of a "financing hierarchy," in which internal finance has important cost advantages over external finance. We build on recent research concerning imperfections in markets for equity and debt. This work… CONTINUE READING
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