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Cited by 907Working Capital and Financial PerformanceCorporate Finance and GovernanceFinancial Analysis and Corporate Governance

Working Capital and Fixed Investment: New Evidence on Financing Constraints

Fazzari, Steven M., Petersen, Bruce C.·1993·The RAND Journal of Economics
DOI 10.2307/2555961
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Abstract

This article presents new tests for finance constraints on investment by emphasizing the often-neglected role of working capital as both a use and a source of funds. The coefficient of endogenous working capital investment is negative in a fixed-investment regression, as expected if working capital competes with fixed investment for a limited pool of finance. This finding addresses a criticism of previous research on finance constraints, that cash flows may simply proxy shifts in investment demand. In addition, previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital.

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Crossref · 10.2307/2555961

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Authors
Fazzari, S. M., & Petersen, B. C.
ORCID
Venue
The RAND Journal of Economics
Publisher
Wiley
Published
1993
Volume
24
Issue
3
Pages
328
ISSN
0741-6261 (ISSN-L)
DOI
10.2307/2555961
OpenAlex
W2040515436
Cited by
907
References
3
Citations by year
2026: 30 · 2025: 25 · 2024: 46 · 2023: 49 · 2022: 46 · 2021: 40 · 2020: 55 · 2019: 51 · 2018: 48 · 2017: 38 · 2016: 45 · 2015: 38 · 2014: 42 · 2013: 45 · 2012: 45
FWCI
38.70
Type
journal article
Language
en
Open access
closed
Licence
doi.wiley.com/10.1002/tdm_license_1 (tdm, 8278 d)
Locations
  • The RAND Journal of Economics (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Topics
  • Social Sciences › Business, Management and Accounting › Accounting › Working Capital and Financial Performance
  • Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
  • Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
Keywords
financial constraints, working capital, fixed investment, investment smoothing, capital budgeting, corporate financing, investment demand

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