Investment Models: Methodology and Results

This paper provides an overview of the empirical studies on corporate financing patterns and firm’s investment behavior. In a frictionless world the Modigliani-Miller theorem holds as well as the neoclassical investment theory. However, in presence of imperfections resulting from information asymmetries internal finance is often less costly than external finance. The goal in this article is to show how empirical studies have examined the role of financial constraints and firm’s investment behavior.

KEYWORDS:
Investment; asymmetry; liquidity; financing