This paper examines the effect of economic policy uncertainty and its components on firm-level investment. It is found that economic policy uncertainty in interaction with firm-level uncertainty depresses firms’ investment decisions. When firms are in doubt about costs of doing business due to possible changes in regulation, cost of health care and taxes, they become more guarded with investmen...

A controversy exists on the use of the investment – cash flow sensitivity as a measure of financing constraints of firms. We re-examine this controversy by analyzing firms affiliated to Indian business groups. We find a strong investment – cash flow sensitivity for both group-affiliated and independent firms, but no significant difference in the sensitivity between them. Additional tests consis...

Relying upon a rich and unique panel of Hungarian firms over 7 years, from 1992 up to 1998, this paper estimates simultaneously TFP, Total Factor Productivity, identified as efficiency, and the parameters of a model where investment depends upon internal funds, wages, and sales, as in Prasnikar J. and Svejnar J. (2000). It shows that while real investment is higher in foreign firms, the improve...

We comprehensively examine the effects of stock return volatility on firms’ financial and investment decisions. Consistent with theories of investment with financing frictions, firms with high volatility actively reduce their leverage, cut investment, increase cash holding, cut non-cash current assets such as inventories and account receivables, and cut dividend. The effects of volatility are s...

This paper investigates whether institutional investors influence firms’ investment in real assets and reduce the managerial agency conflict in investment choices. Institutional investors’ holdings of U.S. firms have gone from 10% of shares outstanding in 1960, to well over 60% in 2005. Importantly, given their significant ownership stakes and investment horizons, we expect them to closely moni...

Among stock-market-listed Japanese firms in 1994-95, the financial health of the firm's main bank did not significantly affect its investment behavior, after controlling for stock market valuation and cash flow. However, among the subset of bank-dependent firms, investment was lower by over 50 percent at firms that have one of the lowest-rated banks as their main bank. Because low-rated banks a...

The corporate finance literature suggests that a financially constrained firm invests less than an identical unconstrained firm. This does not imply that financial frictions cause firms to invest less than in a frictionless economy. When firms compete for investment funds, an increase in financial frictions can lead individual firms to increase their investment levels. A greater than the fricti...

The purpose of this study is to analyze the consequence of the existence of positive externality in the optimal choice of a firm’s time of investment in a gaming environment. I consider a situation where firms can increase their subsequent revenue stream by investing at a period of time. The investment opportunity is assumed to be one-time opportunity and once it is made, it cannot be redone, i...

Financial factors and ownership structure are both part of the determinants of corporate R&D investment. Considering listed firms in the R&D intensive industries during the 2000s, this paper examines whether financial factors and ownership structure explain R&D investment in Japan. Following the methodology of Brown et al. (2009), which extends the dynamic investment model of Bond and Maghir (1...