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Macro midterm spring

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Question:

Using panel data on individual manufacturing firms, we compare the investment behavior of rapidly growing firms that exhaust all of their internal finance with that of mature firms paying dividends. We find that q values remain very high for significant periods of time for firms paying no dividends, relative to those for mature firms. We also find that investment is more sensitive to cash flow for the group of firms that our model implies is most likely to face external finance constraints Supports Financial Market Imperfection Theory.

Author: Daniel Ortega



Answer:

Financial Imperfection - Fazzari, Hubbard, and Peterson


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