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Dynamic Investment Models and the Firm's Financial Policy

Dynamic Investment Models and the Firm's Financial Policy Abstract In this paper we investigate the sensitivity of investment to the availability of internal funds using the hierarchy of finance approach to corporate finance. We characterize the empirical implications of this approach for dynamic investment models and test these implications using firm-level data. The model we estimate is based on the Euler equation for optimal capital accumulation in the presence of convex adjustment costs. The theoretical model explicitly allows for debt finance and financial assets. The empirical investigation uses U.K. company panel data to estimate dynamic investment models using GMM and tests the derived implications. This content is only available as a PDF. © 1994 The Review of Economic Studies Limited http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Economic Studies Oxford University Press

Dynamic Investment Models and the Firm's Financial Policy

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References (26)

Publisher
Oxford University Press
Copyright
© 1994 The Review of Economic Studies Limited
ISSN
0034-6527
eISSN
1467-937X
DOI
10.2307/2297978
Publisher site
See Article on Publisher Site

Abstract

Abstract In this paper we investigate the sensitivity of investment to the availability of internal funds using the hierarchy of finance approach to corporate finance. We characterize the empirical implications of this approach for dynamic investment models and test these implications using firm-level data. The model we estimate is based on the Euler equation for optimal capital accumulation in the presence of convex adjustment costs. The theoretical model explicitly allows for debt finance and financial assets. The empirical investigation uses U.K. company panel data to estimate dynamic investment models using GMM and tests the derived implications. This content is only available as a PDF. © 1994 The Review of Economic Studies Limited

Journal

The Review of Economic StudiesOxford University Press

Published: Apr 1, 1994

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