DMCA
Investment policy, internal financing and ownership concentration in the UK. (2000)
| Citations: | 20 - 1 self |
BibTeX
@MISC{Goergen00investmentpolicy,,
author = {Marc Goergen and Marc Goergen and Luc Renneboog and Luc Renneboog},
title = {Investment policy, internal financing and ownership concentration in the UK.},
year = {2000}
}
Share
 |
 |
 |
 |
||
OpenURL
Abstract
This paper investigates whether investment spending of firms is sensitive to the availability of internal funds. Imperfect capital markets create a hierarchy for the different sources of funds such that investment and financial decisions are not independent. The relation between corporate investment and free cash flow is investigated using the Bond and Meghir (1994a) Eulerequation model for a panel of 240 companies listed on the London Stock Exchange over a 6 year period. This method allows for a direct test of the first-order condition of an intertemporal maximisation problem. It does not require the use of Tobin's q, which is subject to mis-measurement problems. Apart from past investment levels and generated cash flow, the model also includes a leverage factor which captures potential bankruptcy costs and the tax advantages of debt. More importantly, we investigate whether ownership concentration by class of shareholder creates or mitigates liquidity constraints. Control is expecte...
Keyphrases
ownership concentration investment policy internal financing mis-measurement problem london stock exchange past investment level imperfect capital market intertemporal maximisation problem year period free cash flow first-order condition direct test different source investment spending potential bankruptcy cost tax advantage corporate investment mitigates liquidity constraint shareholder creates cash flow leverage factor financial decision internal fund eulerequation model
