Working Paper: NBER ID: w7659
Authors: Steven N. Kaplan; Luigi Zingales
Abstract: Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment-cash flow sensitivities (G31) | Financing constraints (G32) |
| Financing constraints (G32) | Investment-cash flow sensitivities (G31) |
| Financially distressed firms (G33) | Investment-cash flow sensitivities (G31) |
| Less constrained firms (D22) | Investment-cash flow sensitivities (G31) |
| High cash balances (e.g., Microsoft) (D25) | Financing constraints (G32) |
| Endogeneity of financial positions (G19) | Interpretation of cash flow sensitivities (G32) |