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Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity

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Listed:
  • Robert E. Carpenter

    (Emory University)

  • Steven M. Fazzari

    (Washington University)

  • Bruce C. Petersen

    (Washington University)

Abstract

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal finance hypotheses. To discriminate between hypotheses, we extend existing methodology by focusing on time and sectoral heterogeneity in high-frequency (quarterly) firm data. We find evidence consistent with all three financing constraint channels, but the internal finance hypothesis appears to best explain the broad set of facts about the amplitude of inventory investment and its sectoral and time heterogeneity.

Suggested Citation

  • Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1995. "Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity," Macroeconomics 9510001, University Library of Munich, Germany, revised 09 Oct 1995.
    • Handle: RePEc:wpa:wuwpma:9510001
    Note: Type of Document - word for windows v 6.0, binary; prepared on IBM PC; to print on HP/Laserjet 3; pages: 50 ; figures: five (request from authors)
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    Cited by:

    1. Ozgür Orhangazi, 2008. "Financialisation and capital accumulation in the non-financial corporate sector:," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(6), pages 863-886, November.
    2. Pasquale Lucio Scandizzo, 2004. "Financing Technology: An Assessment of Theory and Practice," CEIS Research Paper 43, Tor Vergata University, CEIS.
    3. Hendel, Igal, 1997. "Aggressive pricing as a source of funding," Economics Letters, Elsevier, vol. 57(3), pages 275-281, December.
    4. Orhangazi, Ozgur, 2007. "Financialization and Capital Accumulation in the Nonfinancial Corporate Sector: A Theoretical and Empirical Investigation on the US Economy, 1973-2004," MPRA Paper 7724, University Library of Munich, Germany.
    5. Alexander Cobham, "undated". "The Financing and Technology Decisions of SMEs: I. Finance as a Determinant of Investment," QEH Working Papers qehwps24, Queen Elizabeth House, University of Oxford.

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    More about this item

    Keywords

    inventory investment; cash flow; finance constraint; credit; monetary transmission;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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