The supposed preference of firms for internal financial sources to fund their investments can be explained by either the free cash-flow or the financial constraints theories, both relying on asymmetric information. Neither theory was found fully valid by recent research. Using a French data panel, conclusive evidence will be made in favour of the free cash-flow theory in special cases. The validity of the free cash-flow theory in special cases will bring new issues to light with the introduction of a new definition: soft budgeting problem of capital. Through this analysis, the possible interaction between capital market imperfections and general equilibrium will also gain new dimension.
Greenwald, B., Stiglitz, J. and Weiss, A. (1984): Informational Imperfections in the Capital Market and Macroeconomic Fluctuations. American Economic Review, 74: 2.
'Informational Imperfections in the Capital Market and Macroeconomic Fluctuations' () 74American Economic Review.
Informational Imperfections in the Capital Market and Macroeconomic FluctuationsAmerican Economic Review74)| false
Devereaux, M. and Schiantarelli, F. (1990): Investment, Financial Factors and Cash-flow: Evidence from the UK Panel Data. In: Hubbard, G. (ed.): Asymmetric Information, Corporate Finance and Investment. Chicago: University of Chicago Press.
Investment, Financial Factors and Cash-flow: Evidence from the UK Panel Data, ().
Investment, Financial Factors and Cash-flow: Evidence from the UK Panel Data)| false
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2021 Volume 71
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