TY  - JOUR
AU  - Hovakimian,Gayane
AU  - Titman,Sheridan
TI  - Corporate Investment with Financial Constraints: Sensitivity of Investment to Funds from Voluntary Asset Sales
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9432
PY  - 2003
Y2  - January 2003
UR  - http://www.nber.org/papers/w9432
L1  - http://www.nber.org/papers/w9432.pdf
N1  - Author contact info:
Sheridan Titman
Finance Department
McCombs School of Business
University of Texas at Austin
Austin, TX 78712-1179
Tel: 512/232-2787
Fax: 512/471-5073
E-Mail: titman@mail.utexas.edu
AB  - This paper examines the importance of financial constraints for firm investment expenditures by looking at the relationship between investment expenditures and proceeds from voluntary asset sales in financially healthy US manufacturing companies. Specifically, we examine whether asset sales have a greater influence on investment expenditures for firms that are likely to be financially constrained. Asset sales may provide a cleaner indicator of liquidity than cash flow since it appears not to be positively correlated with future investment opportunities. The cross-sectional differences in firm investment expenditures are examined using an endogenous switching regression model with unknown sample separation, which does not require an a priori classification of firms or knowledge of their financial constraints. We find that after controlling for investment opportunities and cash generated from operations, cash obtained from asset sales is a significant determinant of corporate investment. Moreover, the sensitivity of investment to proceeds from asset sales is significantly stronger for firms that are likely to be associated with characteristics associated with financial constraints.
ER  -