Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints
Kaplan and Zingales  provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen  criticize those findings. In this note, we explain how the Fazzari et al.  criticisms are either very supportive of the claims in Kaplan and Zingales  or incorrect. We conclude with a discussion of unanswered questions.
Published as "Do Investment-Cash Flow Sensitivities Provide Useful Measuresof Financing Constraints?", Quarterly Journal of Economics, Vol. 107, no. 1(February 1997): 16-215. citation courtesy of