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Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?*

* This paper is a replication of an original study

Author

Listed:
  • Steven N. Kaplan
  • Luigi Zingales

Abstract

No. This paper investigates the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen as having unusually high investment-cash flow sensitivities. We find that firms that appear less financially constrained exhibit significantly greater sensitivities than firms that appear more financially constrained. We find this pattern for the entire sample period, subperiods, and individual years. These results (and simple theoretical arguments) suggest that higher sensitivities cannot be interpreted as evidence that firms are more financially constrained. These findings call into question the interpretation of most previous research that uses this methodology.

Suggested Citation

  • Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
    • Handle: RePEc:oup:qjecon:v:112:y:1997:i:1:p:169-215.
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    File URL: http://hdl.handle.net/10.1162/003355397555163
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    Replication

    This item is a replication of:
  • Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.

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    1. Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints? (QJE 1997) in ReplicationWiki

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