Focusing on a panel of unlisted firms from transition economies, we observe that only firms facing low irreversibility exhibit high and significant investment-cash flow sensitivities. Our findings provide a new explanation for why some financially constrained firms may exhibit low sensitivities.

Using a panel of 4223 Bulgarian, Czech, Polish, and Romanian firms, over the period 1998-2005, we show that financially constrained firms likely to face irreversibility constraints exhibit low and insignificant sensitivities of investment to cash flow. These firms typically use their cash flow...

Corporate bond issuance has followed an upward trend in the last decade that has tripled the volume of corporate public debt. There is a long literature on reasons why firms choose this option, which has recently explored the influence of a firm’s reputation on the decision to go public. The...

A large body of empirical work has established the significance of cash flow in explain- ing investment dynamics. This finding is further taken as evidence of capital market imperfections. We show, using a perfect capital markets model, that time-to-build for capital projects creates an...

We estimate a two-sector DSGE model with financial intermediaries—a-la Gertler and Karadi 2011) and Gertler and Kiyotaki (2010)—and quantify the importance of financial shocks in accounting for aggregate and sectoral fluctuations. Our results indicate a significant role of financial market...

We estimate a two-sector DSGEmodel with financial intermediaries—a-la Gertler and Karadi (2011) and Gertler and Kiyotaki (2010)—and quantify the importance of news shocks in accounting for aggregate and sectoral fluctuations. Our results indicate a significant role of financial market news...

We study how excessive debt-GDP ratios affect political sustainability of prudent fiscal policy in country members of a monetary union. We develop a model with free choice of distinct rent-seeking groups to cooperate (or not) in providing public goods, in seeking rents, and in austere debt...

We provide evidence that positive industry-level productivity shocks cause employment to fall in the short run in the UK economy. We use a new UK industry data(over the period 1970-2000), which covers both manufacturing and non-manufacturing industries, and identify productivity shocks using...

This paper shows that small firms inventory investment is substantially more sensitive (relative to large firms) to cash flow than previously recognized. Consequently, the strength of financing constraints on inventory investment may have been understated.

After a neutral technology shock, hours worked decline in a persistent manner in the UK. This response is robust to a variety of considerations in the recent literature: measures of labour input, level versus differenced hours in the VAR, small and large VARS, long- versus medium- run...