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Liquidity constraints and the firms' investment return behavior

Basu, P.; Guariglia, A.

Authors

A. Guariglia



Abstract

We construct a production-based model, which compares the investment return behaviour of liquidity-constrained firms with that of unconstrained firms. The key testable implication that emerges from the model is that the investment returns of the constrained firms are predictable, while those of the unconstrained firms are not. We test this implication indirectly, verifying whether the capital stock and investment returns of the latter firms lead those of the former, and directly, via the estimation of an Euler equation. Our results are consistent with the model's prediction.

Citation

Basu, P., & Guariglia, A. (2002). Liquidity constraints and the firms' investment return behavior. Economica, 69(276), 563-581. https://doi.org/10.1111/1468-0335.00301

Journal Article Type Article
Publication Date Nov 1, 2002
Deposit Date Apr 2, 2007
Journal Economica
Print ISSN 0013-0427
Electronic ISSN 1468-0335
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 69
Issue 276
Pages 563-581
DOI https://doi.org/10.1111/1468-0335.00301
Public URL https://durham-repository.worktribe.com/output/1625676

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