Steven Fazzari

Campus Box 1208
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Washington University
St. Louis, MO 63130

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NBER Working Papers and Publications

January 1996Financing Constraints and Corporate Investment: Response to Kaplan and Zingales
with R. Glenn Hubbard, Bruce C. Petersen: w5462
Kaplan and Zingales (1995, hereafter KZ) criticize Fazzari, Hubbard and Petersen (1988, hereafter FHP) and much ensuing research that uses cross-sectional differences in firm behavior to test for financing constraints on investment. This reply identifies flaws in the KZ analysis. The questions KZ raise have been considered extensively and rigorously in the literature (most of which is not addressed in KZ), with results broadly similar to those of FHP. We also challenge both of KZ's main results. First, their finding that most of the FHP firms are not financially constrained relies on an inappropriate operational definition of what it means to be constrained. Their definition ignores the incentives for firms that operate in imperfect capital markets to accumulate stocks of cash or main...


  • Quarterly Journal of Economics, vol 115, no. 2, (May 2000), pp. 695-705.
  • Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen & Alan S. Blinder & James M. Poterba, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, vol 1988(1).

May 1989Investment, Financing Decisions, and Tax Policy
with R. Glenn Hubbard, Bruce C. Petersen: r1193

Published: The American Economic Review, Vol. 78, No. 2, pp. 200-205, (May 1988).

September 1987Financing Constraints and Corporate Investment
with R. Glenn Hubbard, Bruce C. Petersen: w2387
Most empirical models of investment rely on the assumption that firms are able to respond to prices set in centralized securities markets (through the "cost of capital" or "q"). An alternative approach emphasizes the importance of cash flow as a determinant of investment spending, because of a "financing hierarchy," in which internal finance has important cost advantages over external finance. We build on recent research concerning imperfections in markets for equity and debt. This work suggests that some firms do not have sufficient access to external capital markets to enable them to respond to changes in the cost of capital, asset prices, or tax-based investment incentives. To the extent that firms are constrained in their ability to raise funds externally, investment spending may be se...

Published: Fazzari, Steven M., R. Glenn Hubbard, and Bruce C. Petersen. "Financing Constraints and Corporate Investment." From Brookings Papers on Economic Activity, Vol. 1, pp. 141-195, (1988). citation courtesy of

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