This paper examines the financing decisions of firms in response to changes in investments and profits. We find that information frictions play important roles in firms' financing decisions. However, we find no evidence that asymmetric information about the value of a firm's assets causes equity...

Empirical studies of firms' financing, investment, and payout policies routinely examine these policies in isolation. In this paper we develop a dynamic multi-equation model where firms make financing and investment decisions jointly subject to the constraint that sources of cash must equal uses...

We develop a dynamic multi-equation model where firms make financing and investment decisions jointly subject to the constraint that sources must equal uses of cash. We argue that static models of financial decisions produce inconsistent coefficient estimates and that models that do not...