Investment Strategy, Dividend Policy and Financial Constraints of the Firm

• DOI: 10.1142/s0219091500000121
• Publication Date: 2003-04-22T07:59:24Z
• Authors: Chau-Chen Yang; Chung-Jiun Lin; Yi-Chen Lu
• Keywords: Investment; External financing; Internal financing

In the real world where capital market is considered imperfect, firms are facing financing constraints due to presence of asymmetric information and agency problems. Fazzari, Hubbar, Petersen (FHP) (1988) propose use investment-cash flow sensitivity investigate whether firm has constraints. They find that effect cash on investment larger for low-pay-out firms. Later research such as Devereux Schiantarelli (1989), Hoshi, Kashyap Scharfstein (1991) Kaplan Zingales (1997) also followed FHP's method do more constrains. FHP assume dividend policy a exogenous relationship. We endogenous two-stage Probit Selection model deal with examination The empirical result shows that: 1) There exist some differences between OLS Model, especially in explanatory variable, Tobin's q. 2) long run, pay no observed have significant constraints, compared dividends frequently.