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.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: investment; leverage; India
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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