Abstract
ABSTRACT This paper presents evidence supporting the theory that problems of asymmetric information in debt markets affect financially unhealthy firms' ability to obtain outside finance and, consequently, their allocation of real investment expenditure over time. I test this hypothesis by estimating the Euler equation of an optimizing model of investment. Including the effect of a debt constraint greatly improves the Euler equation's performance in comparison to the standard specification. When the sample is split on the basis of two measures of financial distress, the standard Euler equation fits well for the a priori unconstrained groups, but is rejected for the others.
Keywords
Investment (military)DebtEconomicsConstraint (computer-aided design)Market liquidityEconometricsEuler equationsSimultaneous equations modelA priori and a posterioriLiquidity constraintPanel dataStructural equation modelingSample (material)Dispersion (optics)Monetary economicsMathematicsFinanceStatistics
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Publication Info
- Year
- 1992
- Type
- article
- Volume
- 47
- Issue
- 4
- Pages
- 1425-1460
- Citations
- 1641
- Access
- Closed
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Cite This
Toni M. Whited
(1992).
Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data.
The Journal of Finance
, 47
(4)
, 1425-1460.
https://doi.org/10.1111/j.1540-6261.1992.tb04664.x
Identifiers
- DOI
- 10.1111/j.1540-6261.1992.tb04664.x