The DOI matches its Crossref record; 2 of the 2 references it cites were found in a registry or an index.
Measurement Error and the Relationship between Investment and q
Abstract
Many recent empirical investment studies have found that the investment of financially constrained firms responds strongly to cash flow. Paralleling these findings is the disappointing performance of the q theory of investment: even though marginal q should summarize the effects of all factors relevant to the investment decision, cash flow still matters. We examine whether this failure is due to error in measuring marginal q. Using measurement error–consistent generalized method of moments estimators, we find that most of the stylized facts produced by investment‐q cash flow regressions are artifacts of measurement error. Cash flow does not matter, even for financially constrained firms, and despite its simple structure, q theory has good explanatory power once purged of measurement error.
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Cites
Dixit, R. K., & Pindyck, R. S. (1994) · doi:10.1515/9781400830176 · Cited by 9,029
Financing Constraints and Corporate Investment
Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988) · Brookings Papers on Economic Activity · doi:10.2307/2534426 · Cited by 5,574
Cited by
Endogeneity in Empirical Corporate Finance1
Roberts, M. R., & Whited, T. M. (2013) · Handbook of the Economics of Finance · doi:10.1016/b978-0-44-453594-8.00007-0 · Cited by 2,459
Self-citationFinancial Constraints, Investment, and the Value of Cash Holdings
Denis, D. J., & Sibilkov, V. (2010) · Review of Financial Studies · doi:10.1093/rfs/hhp031 · Cited by 1,377
Love, I. (2003) · Review of Financial Studies · doi:10.1093/rfs/hhg013 · Cited by 964
Do Tests of Capital Structure Theory Mean What They Say?
STREBULAEV, I. A. (2007) · The Journal of Finance · doi:10.1111/j.1540-6261.2007.01256.x · Cited by 962
Is cash negative debt? A hedging perspective on corporate financial policies
Acharya, V. V., Almeida, H., & Campello, M. (2007) · Journal of Financial Intermediation · doi:10.1016/j.jfi.2007.04.001 · Cited by 893
Metadata
- Authors
- Erickson, T., & Whited, T. M.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2000-10
- Volume
- 108
- Issue
- 5
- Pages
- 1027-1057
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W3124046399
- Cited by
- 1,164
- References
- 2
- FWCI
- 81.14
- Type
- journal article
- Language
- en
- Open access
- closed
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