Home > Research > Publications & Outputs > Can Capital Adjustment Costs Explain the Declin...

Research

Associated organisational unit

Electronic data

  • JFQA-21-22062_R2_accepted

    Accepted author manuscript, 680 KB, PDF document

    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

Links

Text available via DOI:

View graph of relations

Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity?

Research output: Contribution to Journal/Magazine › Journal article › peer-review

E-pub ahead of print

Standard

Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity? / Liao, Shushu; Nolte, Ingmar; Pawlina, Grzegorz.
In: Journal of Financial and Quantitative Analysis, 11.04.2023.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Liao, S, Nolte, I & Pawlina, G 2023, 'Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity?', Journal of Financial and Quantitative Analysis. https://doi.org/10.1017/S0022109023000418

APA

Liao, S., Nolte, I., & Pawlina, G. (2023). Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity? Journal of Financial and Quantitative Analysis. Advance online publication. https://doi.org/10.1017/S0022109023000418

Vancouver

Liao S, Nolte I, Pawlina G. Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity? Journal of Financial and Quantitative Analysis. 2023 Apr 11. Epub 2023 Apr 11. doi: 10.1017/S0022109023000418

Author

Liao, Shushu ; Nolte, Ingmar ; Pawlina, Grzegorz. / Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity?. In: Journal of Financial and Quantitative Analysis. 2023.

Bibtex

@article{376251591a264268ad5594960e110bfa,
title = "Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity?",
abstract = "It is well documented that since at least the 1970s investment-cash flow (I-CF) sensitivity has been decreasing over time to disappear almost completely by the late 2000s. Based on a neoclassical investment model with costly external financing, we show that this pattern can be explained by the gradual increase of capital adjustment costs, attributable to the accumulation of knowledge capital. The result is robust to a variety of approaches, including Euler equation estimation and the simulated method of moments. More generally, our findings demonstrate that I-CF sensitivity should only be interpreted as a joint measure of financial and real frictions.",
author = "Shushu Liao and Ingmar Nolte and Grzegorz Pawlina",
year = "2023",
month = apr,
day = "11",
doi = "10.1017/S0022109023000418",
language = "English",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",

}

RIS

TY - JOUR

T1 - Can Capital Adjustment Costs Explain the Decline in Investment-Cash Flow Sensitivity?

AU - Liao, Shushu

AU - Nolte, Ingmar

AU - Pawlina, Grzegorz

PY - 2023/4/11

Y1 - 2023/4/11

N2 - It is well documented that since at least the 1970s investment-cash flow (I-CF) sensitivity has been decreasing over time to disappear almost completely by the late 2000s. Based on a neoclassical investment model with costly external financing, we show that this pattern can be explained by the gradual increase of capital adjustment costs, attributable to the accumulation of knowledge capital. The result is robust to a variety of approaches, including Euler equation estimation and the simulated method of moments. More generally, our findings demonstrate that I-CF sensitivity should only be interpreted as a joint measure of financial and real frictions.

AB - It is well documented that since at least the 1970s investment-cash flow (I-CF) sensitivity has been decreasing over time to disappear almost completely by the late 2000s. Based on a neoclassical investment model with costly external financing, we show that this pattern can be explained by the gradual increase of capital adjustment costs, attributable to the accumulation of knowledge capital. The result is robust to a variety of approaches, including Euler equation estimation and the simulated method of moments. More generally, our findings demonstrate that I-CF sensitivity should only be interpreted as a joint measure of financial and real frictions.

U2 - 10.1017/S0022109023000418

DO - 10.1017/S0022109023000418

M3 - Journal article

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

SN - 0022-1090

ER -