Lookup NU author(s): Dr Fabrizio Casalin
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).
We develop a simple theoretical model of investment under the assumption that financial frictions generate adjustment costs different from those of industrial origin that are normally discussed in the literature. We identify several restrictions that are used to test and estimate the model using aggregate data for the United States. We find strong evidence that adjustment costs on external finance are significant. We then investigate whether the availability of external finance affects investment of non-financial corporations. We find that a strong relationship holds between financial flows and investment. Shocks to investment have a persistent impact on external finance, whereas the impact on investment of external finance shocks is less persistent.
Author(s): Casalin F, Dia E
Publication type: Article
Publication status: Published
Journal: Journal of Economics and Business
Print publication date: 11/06/2014
Online publication date: 01/09/2014
Acceptance date: 03/06/2014
Date deposited: 17/03/2015
ISSN (print): 0148-6195
Publisher: Elsevier Inc.
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