Sonderforschungsbereich 504 Does Firms' Financial Status Affect Plant-level Investment and Exit Decision Does Firms' Financial Status Aaect Plant-level Investment and Exit Decisions? Keywords: Investmentt Divestituree Nancial Constraints Jel Classiication: D922 E444 G31 I Am Grateful To

This paper investigates the in uence of a rm's nancial status on the withinrm allocation of funds, re ected in its plant-level investment and exit decisions. In the empirical analysis, nancial status is measured by both standard measures and an indicator variable recently suggested by Kaplan and Zingales. Based on these rm-level nancial variables and on plant-level investment and production data from the U.S. Census Bureau's Longitudinal Research Database (LRD), econometric models of plant operating regimes are estimated which summarize investment and exit decisions. The empirical evidence supports the view that rmlevel nancial status a ects investment and market exit decisions observed at the plant level.