Investment and Liquidity Constraints

During the last decade, exploring the link between financial factors and investment has become a major field of theoretical and empirical publications. Some empirical findings indicate that young, fast growing, low dividend paying firms are faced with more liquidity constraints than other firms and therefore show stronger reactions concerning investments to changes of their internal financial flow.

Andreas Behr explores the role of financial factors in a firm's investment decision. He applies the Q-theory of investment to a unique database of German firms (the Deutsche Bundesbank's Corporate Balance Sheet Statistics) covering balance sheet data of 2 314 firms. The empirical results show a strong and significant influence of the calculated Q.

Autorentext
PD Dr. Andreas Behr lehrt am Institut für Ökonometrie und Wirtschaftsstatistik der Universität Münster.

Inhalt

1. Introduction.- 2. The Q-theory of investment and the role of internal funds.- 2.1. The Q-Model.- 2.2. Investment, information and incentive problems in capital markets.- 2.3. Conclusion.- 3. Dynamic panel data estimation.- 3.1. The problem of bias caused by lagged dependant variables.- 3.2. Dynamic panel data estimators.- 3.3. Monte Carlo study.- 3.4. Conclusion.- 4. The data source and measurement problems.- 4.1. The data source.- 4.2. The capital stock at replacement costs: A new algorithm.- 4.3. The Calculation of Q.- 4.4. Conclusion.- 5. Empirical findings.- 5.1. Nonparametric regression results.- 5.2. Aggregate and disaggregate Q-investment functions.- 5.3. Testing for liqudity effects in three sectors: manufacturing, construction, commerce.- 5.4. An analysis of size effects.- 5.5. An eclectic approach.- 6. Summary.- References.