Investment and Finance when Liquidation is Costly
In this paper we investigate to what extent expected liquidation costs affect the dependence of a firm's investment decision on available finance. We hypothesise that comovement of firm and industry sales measures such costs, which create a premium on external finance and make investment more sensitive to the availability of internal funds. Supportive evidence for this conjecture is obtained from the investment behaviour of a sample of 206 large Dutch manufacturing firms observed during the period 1983-1996. We also demonstrate that our measure of expected liquidation costs has additional explanatory power over other proxies for the premium on external finance -- like leverage, retention practice and firm size.
Year of publication: |
2004
|
---|---|
Authors: | Bruinshoofd, Allard ; Letterie, Wilko |
Published in: |
De Economist. - Springer, ISSN 0013-063X. - Vol. 152.2004, 1, p. 21-45
|
Publisher: |
Springer |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Internal capital markets in Dutch firms
Bruinshoofd, Allard, (2002)
-
Comovement of sales, retention practice and financing constraints in Dutch manufacturing
Bruinshoofd, Allard, (2001)
-
Investment and finance when liquidation is costly
Bruinshoofd, Allard, (2004)
- More ...