Abstract

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal finance hypotheses. To discriminate between hypotheses, we extend existing methodology by focusing on time and sectoral heterogeneity in high-frequency (quarterly) firm data. We find evidence consistent with all three financing constraint channels, but the internal finance hypothesis appears to best explain the broad set of facts about the amplitude of inventory investment and its sectoral and time heterogeneity.

Keywords

CollateralConstraint (computer-aided design)EconomicsInvestment (military)Internal financingInventory investmentFinanceEconometricsAggregate (composite)Set (abstract data type)Information asymmetryComputer science

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Publication Info

Year
1995
Type
preprint
Citations
8
Access
Closed

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Robert E. Carpenter, Steven M. Fazzari, Bruce C. Petersen (1995). Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity. RePEc: Research Papers in Economics .