Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints

Steven N. Kaplan, Luigi Zingales

NBER Working Paper No. 7659
Issued in April 2000
NBER Program(s):Corporate Finance

Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.

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Document Object Identifier (DOI): 10.3386/w7659

Published: Published as "Do Investment-Cash Flow Sensitivities Provide Useful Measuresof Financing Constraints?", Quarterly Journal of Economics, Vol. 107, no. 1(February 1997): 16-215. citation courtesy of

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