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Cummins, Jason G.,
Kevin A. Hassett, and
Stephen D. Oliner. 2006. "Investment Behavior, Observable Expectations, and Internal Funds."
,
96(3): 796-810.
Show Article Details
DOI: 10.1257/aer.96.3.796
Abstract:We use earnings forecasts from securities analysts to construct a new measure of the
neoclassical fundamentals that drive investment spending. We find that investment responds significantly to our new measure of fundamentals but is insensitive to cash flow, even for firms typically thought to be liquidity constrained. These results have two key implications. First, fundamentals may be more important for investment spending than would be suggested by the results to date from investment-q models. Second, the positive cash-flow effects obtained in such models may reflect a failure to control properly for fundamentals rather than the presence of financial constraints. (JEL: D92, E22)
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Authors:
Cummins, Jason G.
Hassett, Kevin A.
Oliner, Stephen D.
JEL Classifications:
:
None
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