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Investment, irreversibility, and financing constraints in transition economies

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  • Alessandra Guariglia
  • John Tsoukalas
  • Serafeim Tsoukas

Abstract

Using a panel of 4223 Bulgarian, Czech, Polish, and Romanian firms, over the period 1998-2005, we show that financially constrained firms likely to face irreversibility constraints exhibit low and insignificant sensitivities of investment to cash flow. These firms typically use their cash flow to accumulate cash instead of investing. Our findings provide a new explanation for why some financially constrained firms may exhibit low investment-cash flow sensitivities. Specifically, controlling for investment irreversibility may matter for the interpretation of these sensitivities.

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  • Alessandra Guariglia & John Tsoukalas & Serafeim Tsoukas, 2010. "Investment, irreversibility, and financing constraints in transition economies," Discussion Papers 10/03, University of Nottingham, School of Economics.
    • Handle: RePEc:not:notecp:10/03
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