Munich Personal RePEc Archive

Impact of Liquidity constraint on Firms’ Investment Decisions

Ghosh, Saibal and Ghosh, Saurabh (2006): Impact of Liquidity constraint on Firms’ Investment Decisions. Published in: Economia Internazionale , Vol. 54, No. 1 (2006): pp. 17-32.

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The paper investigates whether the effects of monetary policy on firm investment can be transmitted through leverage. The findings indicate that monetary contractions reduce investment for highly leveraged firms. The estimates imply that a 1percentage point increase in leverage reduces investment by 0.109 percent through leverage. Robustness tests broadly validate these findings.

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