Firm Investment and Financial Frictions

Arbeitspapier

In this paper we investigate the analytical and empirical linkages between firms? capital investment behavior and financial frictions arising from asymmetric information, proxied by firms? liquidity and degree of uncertainty. Measures of intrinsic and extrinsic uncertainty are derived from firms? daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. We employ a panel of U.S. manufacturing firm data obtained from COMPUSTAT over the 1984?2003 period. Financial frictions captured by interactions between firms? cash flow and both intrinsic and CAPM-based measures of uncertainty have a significant negative impact on firms? investment spending, while extrinsic uncertainty has a positive impact.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 634

Classification and Topics

• Classification: Wirtschaft ; Criteria for Decision-Making under Risk and Uncertainty ; Investment; Capital; Intangible Capital; Capacity ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
• Subject: capital investment ; asymmetric information ; financial frictions ; uncertainty ; CAPM ; Betriebliche Investitionspolitik ; Finanzierung ; Rentabilität ; Schock ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Baum, Christopher F. ; Caglayan, Mustafa ; Talavera, Oleksandr
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/18527
• Last update: 10.03.2025, 11:42 AM CET