This paper presents evidence suggesting that information and incentive problems in the capital market affect investment. The authors come to this conclusion by examining two sets of Japanese firms. The first set has close financial ties to large Japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm. The second set of firms has weaker links to a main bank and presumably faces greater problems raising capital. Investment is more sensitive to liquidity for the second set of firms than for the first set. The analysis also highlights the role of financial intermediaries in the investment process. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 106 (1991) Issue (Month): 1 (February) Pages: 33-60 Download reference. The following formats are available: HTML
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