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New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index
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TL;DR: In this paper, the authors collected detailed qualitative information from financial filings to categorize financial constraints for a random sample of firms from 1995 to 2004, and used ordered logit models predicting constraints as a function of different quantitative factors.
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Abstract: We collect detailed qualitative information from financial filings to categorize financial constraints for a random sample of firms from 1995 to 2004. Using this categorization, we estimate ordered logit models predicting constraints as a function of different quantitative factors. Our findings cast serious doubt on the validity of the KZ index as a measure of financial constraints, while offering mixed evidence on the validity of other common measures of constraints. We find that firm size and age are particularly useful predictors of financial constraint levels, and we propose a measure of financial constraints that is based solely on these firm characteristics.
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References
Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?
Steven N. Kaplan,Luigi Zingales +1 more
TL;DR: In this article, the authors investigated the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen as having unusually high investment cash flow sensitivity.
The determinants and implications of corporate cash holdings
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