A Granular Analysis of Corporate Investment
Social Science Research Network
Capital expenditures by the top 100 firms make up more than 60% of aggregate investment by publicly traded firms, and explain most of the variation in aggregate net fixed private nonresidential investment. Surprisingly, these firms have the highest investment-cash flow sensitivity in the economy, despite being the least financially constrained. Further, contrary to the trend among smaller firms, the investment-cash flow sensitivity of the top capital spenders has not disappeared over time. For
... red over time. For these firms, we find that cash flows provide better information about future investment opportunities than proxies for Tobin's q. In general, the results from our granular approach indicate that most of the existing evidence based on the behavior of the average firm does not apply to the firms that drive most of the aggregate fluctuations in investment. JEL classification: G32, G34 . Investment-cash flow sensitivities are not valid measures of financing constraints. The Quarterly Journal of Economics, 115(2), 707-712. Leary, M., and M. Roberts (2010). The pecking order, debt capacity, and information asymmetry. Journal of Financial Economics, 95(3), 332-355. Lemmon, M., and J. Zender (2010). Debt capacity and tests of capital structure theories.