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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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Citations
Financial development and labor market outcomes: Evidence from Brazil
TL;DR: In this article, the effect of increased access to bank credit on the employment and wages of high-and low-skilled workers was investigated in Brazil and the authors found that the credit expansion led to an increase in the skill intensity of firms and in within-firm returns to skill and to a reallocation of skilled labor from financially unconstrained firms to constrained firms.
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Exploring the relationship of green investment and green innovation: Evidence from Chinese corporate performance
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Financial Frictions and the Stock Price Reaction to Monetary Policy
TL;DR: Greenwood et al. as mentioned in this paper showed that the stock prices of firms subject to greater information frictions have a weaker reaction to monetary policy than those with less information friction, and they used the Enron accounting scandal and Arthur Andersen's demise as a large exogenous shock, temporarily raising other Andersen clients' information constraints and thereby their financial constraints.
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A Fire Sale without Fire: An Explanation of Labor-Intensive FDI in China
TL;DR: The authors examined the effect of financial distortions on FDI inflows in China's labor-intensive industries and found that firms with greater financing constraints are more likely to be acquired and controlled by foreign firms.
Productivity, financial constraints and outward foreign direct investment: Firm-level evidence
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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
TL;DR: The authors examine the determinants and implications of holdings of cash and marketable securities by publicly traded U.S. firms in the 1971-1994 period and find evidence supportive of a static tradeoff model of cash holdings.
3.9K
Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms
Mark Gertler,Simon Gilchrist +1 more
TL;DR: This article analyzed the response of small versus large manufacturing firms to monetary policy and found that small firms account for a significantly disproportionate share of the manufacturing decline that follows tightening of monetary policy, while large firms initially borrow to accumulate inventories and after a brief period, small firms quickly shed inventories.
The Cash Flow Sensitivity of Cash
TL;DR: In this paper, the authors empirically estimate the sensitivity of cash using a large sample of manufacturing firms over the 1971 to 2000 period and find robust support for their theory, and hypothesize that constrained firms should have a positive cash flow sensitivity, while unconstrained firms' cash savings should not be systematically related to cash flows.
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Financial Constraints Risk
Toni M. Whited,Guojun Wu +1 more
TL;DR: The authors construct an index of firms' external finance constraints via generalized method of moments (GMM) estimation of an investment Euler equation, and explore the impact of financial constraints on their stock returns.