Research Discussion Papers, Bank of Finland
No 15/2008:
Investment-cash flow sensitivities, credit rationing and financing constraints
Leonardo Becchetti, Annalisa Castelli and Iftekhar Hasan ()
Abstract: The controversy over whether investment-cash flow
sensitivity is a good indicator of financing constraints is still
unresolved. We tackle it from several different angles and cross-validate
our analysis with both balance sheet and qualitative data on self-declared
credit rationing and financing constraints. Our qualitative information
shows that (self-declared) credit rationing is (weakly) related to both
traditional a priori factors – such as firm size, age and location – and
lenders’ rational decisions based on their credit risk models. We use our
qualitative information on firms that were denied credit to provide
evidence relevant to the investment-cash flow sensitivity debate. Our
results show that self-declared credit rationing significantly
discriminates between firms that do and do not have such sensitivity,
whereas a priori criteria do not. The same result does not apply when we
consider the wider group of financially constrained firms (which do not
seem to have a higher investment-cash flow sensitivity), which supports the
more recent empirical evidence in this direction.
Keywords: financing constraints; credit rationing; investment/cash flow sensitivity; (follow links to similar papers)
JEL-Codes: D92; G21; (follow links to similar papers)
64 pages, June 24, 2008
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
0815netti.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Minna Nyman ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
