This paper investigates the effect of financing frictions due to source of capital, on firm investment and value. Using instrumental variables approach that controls for endogeneity arising from demand-side factors, we find that firms with access to public debt markets have 11% higher investment than firms without access. Using a structural approach, we find that firm value is 23% lower for firms without access. The estimated effect of financing frictions on firms is even bigger once the specification allows for firms to self-select the source of financing. Thus, source of capital has significant impact on firm investment and value.
{"title":"Does Source of Capital Affect Investment and Firm Value?","authors":"Indraneel Chakraborty","doi":"10.2139/ssrn.1268107","DOIUrl":"https://doi.org/10.2139/ssrn.1268107","url":null,"abstract":"This paper investigates the effect of financing frictions due to source of capital, on firm investment and value. Using instrumental variables approach that controls for endogeneity arising from demand-side factors, we find that firms with access to public debt markets have 11% higher investment than firms without access. Using a structural approach, we find that firm value is 23% lower for firms without access. The estimated effect of financing frictions on firms is even bigger once the specification allows for firms to self-select the source of financing. Thus, source of capital has significant impact on firm investment and value.","PeriodicalId":391825,"journal":{"name":"Capital Structure and Budgeting","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125649097","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We document cycles in corporate investment corresponding with the timing of national elections around the world. During election years, firms reduce investment expenditures by an average of 4.8% relative to nonelection years, controlling for growth opportunities and economic conditions. The magnitude of the investment cycles varies with different country and election characteristics. We investigate several potential explanations and find evidence supporting the hypothesis that political uncertainty leads firms to reduce investment expenditures until the electoral uncertainty is resolved. These findings suggest that political uncertainty is an important channel through which the political process affects real economic outcomes.
{"title":"Political Uncertainty and Corporate Investment Cycles","authors":"Brandon Julio, Youngsuk Yook","doi":"10.2139/ssrn.1349267","DOIUrl":"https://doi.org/10.2139/ssrn.1349267","url":null,"abstract":"We document cycles in corporate investment corresponding with the timing of national elections around the world. During election years, firms reduce investment expenditures by an average of 4.8% relative to nonelection years, controlling for growth opportunities and economic conditions. The magnitude of the investment cycles varies with different country and election characteristics. We investigate several potential explanations and find evidence supporting the hypothesis that political uncertainty leads firms to reduce investment expenditures until the electoral uncertainty is resolved. These findings suggest that political uncertainty is an important channel through which the political process affects real economic outcomes.","PeriodicalId":391825,"journal":{"name":"Capital Structure and Budgeting","volume":"78 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133907987","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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