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JOURNAL OF ACCOUNTING AND FINANCE
Investment and Financing Constraints
Author(s): Nathalie Moyen, Stefan Platikanov
Citation: Nathalie Moyen, Stefan Platikanov, (2013) "Investment and Financing Constraints," Journal of Accounting and Finance, Vol. 13, Iss. 3, pp. 29 - 50
Article Type: Research paper
Publisher: North American Business Press
Abstract:
We investigate whether the sensitivity of corporate investment to internal cash flows is related to
financing constraints. Besides financing constraints, measurement error in Tobin's q is another
competing explanation for the sensitivity, suggested in the literature. Controlling for measurement errors
in Tobin's q and using a parsimonious model specification, we find that investment-cash flow sensitivities
are positive and vary with financing constraints. Measurement errors in Tobin's q do not explain away
the sensitivities for firms facing financing constraints. Evidence of this first-order linear relationship
between investment and internal funds are consistent with the larger literature documenting the effects of
financing frictions on investment.
