Title: Investment theory and empirical approach: a discussion on difficulties

Authors: Elton Eustáquio Casagrande; Fernando Valvano Cerezetti

Addresses: Department of Economics, São Paulo State University – UNESP, Araraquara, São Paulo, 14800-901, Brazil ' Department of Economics, São Paulo State University – UNESP, Araraquara, São Paulo, 14800-901, Brazil

Abstract: In this paper, we analyse several contributions made concerning investment theory in the last decades. The objective of the paper is to discuss the difficulties of the testable theory identified by Chirinko (1983), Fazzari et al. (1988, 2000), Kaplan and Zingales (1997) and Hubbard (1998) to better understand the results of empirical approach. These few authors we worked with provided theoretical arguments and empirical evidences that internal finance variable of the firms may work as an indicator of financial constraint. In several developed countries, financing constraints has been identified as important to understand the investment spending. The principal indicator of financing constraints, that is, cash-flow has been questioned. However, the evidences offer a support to its relevance. We try to justify such evidence based on the few authors listed above, which have been quoted by empirical works. We try to contribute to debate adding aspect of the corporate finance to offer a logical explanation to econometric difficulties.

Keywords: investment theory; imperfections; corporate finance; liquidity constraints; cash flow; accelerator model; valuation; stakeholder; capital markets; credit markets; financial constraints; econometrics.

DOI: 10.1504/LAJMSD.2014.059782

Latin American Journal of Management for Sustainable Development, 2014 Vol.1 No.1, pp.96 - 108

Received: 10 May 2013
Accepted: 26 May 2013

Published online: 10 Mar 2014 *

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