Asset liquidity, corporate investment, and endogenous financing costs

Christian Riis Flor; Stefan Hirth

doi:10.1016/j.jbankfin.2012.09.014

Asset liquidity, corporate investment, and endogenous financing costs

Christian Riis Flor, Stefan Hirth

Institut for Økonomi

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

17 Citationer (Scopus)

Abstract

We analyze how the liquidity of real and financial assets affects corporate investment. The trade-off between liquidation costs and underinvestment costs implies that low-liquidity firms exhibit negative investment sensitivities to liquid funds, whereas high-liquidity firms have positive sensitivities. If real assets are not divisible in liquidation, firms with high financial liquidity optimally avoid external financing and instead cut new investment. If real assets are divisible, firms use external financing, which implies a lower sensitivity. In addition, asset redeployability decreases the investment sensitivity. Our findings demonstrate that asset liquidity is an important determinant of corporate investment.

Originalsprog	Engelsk
Tidsskrift	Journal of Banking & Finance
Vol/bind	37
Nummer	2
Sider (fra-til)	474-489
Antal sider	16
ISSN	0378-4266
DOI	https://doi.org/10.1016/j.jbankfin.2012.09.014
Status	Udgivet - 2013

Emneord

Financing constraints
Corporate investment
Asset liquidity
Redeployability
Liquid funds

Adgang til dokumentet

10.1016/j.jbankfin.2012.09.014

Biblioteksadgang?

Tjek tilgængelighed hos det Kgl. Bibliotek

Citationsformater

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title = "Asset liquidity, corporate investment, and endogenous financing costs",

abstract = "We analyze how the liquidity of real and financial assets affects corporate investment. The trade-off between liquidation costs and underinvestment costs implies that low-liquidity firms exhibit negative investment sensitivities to liquid funds, whereas high-liquidity firms have positive sensitivities. If real assets are not divisible in liquidation, firms with high financial liquidity optimally avoid external financing and instead cut new investment. If real assets are divisible, firms use external financing, which implies a lower sensitivity. In addition, asset redeployability decreases the investment sensitivity. Our findings demonstrate that asset liquidity is an important determinant of corporate investment.",

keywords = "Financing constraints, Corporate investment, Asset liquidity, Redeployability, Liquid funds",

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AU - Flor, Christian Riis

AU - Hirth, Stefan

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PY - 2013

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N2 - We analyze how the liquidity of real and financial assets affects corporate investment. The trade-off between liquidation costs and underinvestment costs implies that low-liquidity firms exhibit negative investment sensitivities to liquid funds, whereas high-liquidity firms have positive sensitivities. If real assets are not divisible in liquidation, firms with high financial liquidity optimally avoid external financing and instead cut new investment. If real assets are divisible, firms use external financing, which implies a lower sensitivity. In addition, asset redeployability decreases the investment sensitivity. Our findings demonstrate that asset liquidity is an important determinant of corporate investment.

AB - We analyze how the liquidity of real and financial assets affects corporate investment. The trade-off between liquidation costs and underinvestment costs implies that low-liquidity firms exhibit negative investment sensitivities to liquid funds, whereas high-liquidity firms have positive sensitivities. If real assets are not divisible in liquidation, firms with high financial liquidity optimally avoid external financing and instead cut new investment. If real assets are divisible, firms use external financing, which implies a lower sensitivity. In addition, asset redeployability decreases the investment sensitivity. Our findings demonstrate that asset liquidity is an important determinant of corporate investment.

KW - Financing constraints

KW - Corporate investment

KW - Asset liquidity

KW - Redeployability

KW - Liquid funds

U2 - 10.1016/j.jbankfin.2012.09.014

DO - 10.1016/j.jbankfin.2012.09.014

M3 - Journal article

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JO - Journal of Banking & Finance

JF - Journal of Banking & Finance

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ER -