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Macro midterm spring

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The theory of financial market imperfections predicts that the association between cash flow and investment will be stronger for firms that face greater barriers to external finance. Unless the association between current cash flow and future profitability is stronger for forms with less access to external finance. The difference in the cash flow - investment relationship between the two groups can be used to test the importance of financial market imperfections to investment.

Author: Daniel Ortega


Financial Market Imperfection Theory

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