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Are green firms more financially constrained? The sensitivity of investment to cash flow

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Abstract

Green investment by private companies is essential to sustainable growth paths in the advanced economies. Whether, and to what extent, investments by green firms are hampered by lack of external finance is an open question. Here we estimate the sensitivity of investment to internal finance in firms engaging in green innovation, finding that the elasticity of investment to cash flow is four times less for green than for non-green firms. This result is stronger among smaller firms and robust to alternative definitions of “green firms.” Our findings indicate that green firms are less financially constrained, consistent with the growing perception of the importance of the green transition, which potentially affects financial investors outside the company.

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  • Tommaso Oliviero & Sandro Rondinella & Alberto Zazzaro, 2024. "Are green firms more financially constrained? The sensitivity of investment to cash flow," CSEF Working Papers 700, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:700
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    Keywords

    Green investment; cash flow; external finance; financial constraints.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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