The Relationship between Firm Investment and Financial Status
- 1 April 1999
- journal article
- research article
- Published by Wiley in The Journal of Finance
- Vol. 54 (2), 673-692
- https://doi.org/10.1111/0022-1082.00121
Abstract
Firm investment decisions are shown to be directly related to financial factors. Investment decisions of firms with high creditworthiness (according to traditional financial ratios) are extremely sensitive to the availability of internal funds; less creditworthy firms are much less sensitive to internal fund availability. This large sample evidence is based on an objective sorting mechanism and supports the results of Kaplan and Zingales (1997), who also find that investment outlays of the least constrained firms are the most sensitive to internal cash flow.Keywords
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