Journal of Financial and Quantitative Analysis Vol. 51 No. 6 2016
How Do Frictions Affect Corporate Investment? A Structural Approach
Abstract
This paper provides a structural approach to testing investment equations based on the log-likelihood function of a nonlinear investment rule. The analysis integrates the predictions of the q -theory for the commonly studied active region of investment and provides new inferences on how real and financing frictions affect the probability that a firm invests. The empirical findings are consistent with the macro-finance literature suggesting that q -theory models with nonconvex investment frictions better explain the data. I also find that both real and financing costs of investment are related to the capital intensity of the industry in which firms operate.
- DOI
- 10.1017/s0022109016000867
- Volume
- 51
- Issue
- 6
- Pages
- 1863-1895
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref