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Using a panel of 5,999 Small and Medium-sized Belgian Enterprises (SMEs) over the period 2002-2008, the authors identify three measures of investment opportunities suitable for unlisted firms. They then estimate firm-varying Investment-Cash Flow Sensitivities (ICFS) from reduced-form investment equations that include these measures, and compare them with those derived from a model that does not control for investment opportunities. They find that all their models yield similar ICFS estimates, which are significantly related to a wide set of proxies for financing constraints. These findings suggest that the ICFS of SMEs do not simply reflect investment opportunities.
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