Two explanations characterize the nature of information asymmetries in corporate investment-financing decisions. Models based on finance constraints argue that information-driven cost differentials between internal and external finance may leave profitable investment projects unexploited. Models...

A well-known but under-emphasized feature of the business cycle is that the flow of internal finance is highly procyclical. We argue that finance constraints lead firms to offset a large proportion of internal finance fluctuations through inventory (dis)investment. We construct three panels of...

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal...