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Author: | Caggese, A. |
Title: | Testing financing constraints on firm investment using variable capital |
Journal: | Journal of Financial Economics
2007 : DEC, VOL. 86:3, p. 683-723 |
Index terms: | financing investment capital models manufacturing companies Italy |
Language: | eng |
Abstract: | This study considers a dynamic multifactor model of investment with financing (here as: fin-g.) imperfections, adjustment costs and fixed and variable capital (as: cap). The model is used to derive a test of fin-g. constraints based on a reduced form variable cap. equation. Based on simulation, it is found among others that this test correctly identifies financially constrained firms even when the estimation of firms' investment opportunities is very noisy. The test validity is empirically confirmed on a sample of small Italian manufacturing companies. |
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