Investment-Cash Flow Sensitivities Are Very Probably Not Valid Measures of Financing Constraints

Download or read book Investment-Cash Flow Sensitivities Are Very Probably Not Valid Measures of Financing Constraints written by Javier Sánchez Vidal and published by . This book was released on 2019 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This experiment uses a Monte Carlo simulation designed to test whether the problems about the use of accounting identities are present in the model of Fazzari, Hubbard, and Petersen (1988). The Monte Carlo simulation creates 10,000 sets of randomly generated cash flows, Tobin's Q, and an error term variables, which in turn shape an investments variable that depends on them. These two variables are also related through an accounting semi identity or accounting partial identity (API). OLS estimations verify that estimated coefficients do not represent reality. The closer the data are to the accounting identity, the less the regression will tell about the causal relation.