Resource title

Firm Investment and Financial Frictions

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Resource description

In this paper we investigate the analytical and empirical linkages between firms? capital investment behavior and financial frictions arising from asymmetric information, proxied by firms? liquidity and degree of uncertainty. Measures of intrinsic and extrinsic uncertainty are derived from firms? daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. We employ a panel of U.S. manufacturing firm data obtained from COMPUSTAT over the 1984?2003 period. Financial frictions captured by interactions between firms? cash flow and both intrinsic and CAPM-based measures of uncertainty have a significant negative impact on firms? investment spending, while extrinsic uncertainty has a positive impact.

Resource author

Christopher F. Baum, Mustafa Caglayan, Oleksandr Talavera

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18527

Resource license

Adapt according to the presented license agreement and reference the original author.