What question did this study set out to answer?

The study aims to investigate how asymmetric information in debt markets affects investment decisions of financially distressed firms.

September 1, 1992The Journal of Finance

Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data

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Authors

TWToni M. WhitedNational Bureau of Economic Research

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Implication

Randomized trial reveals the impact of debt constraints on investment allocation in financially unhealthy firms, indicating significant effects of asymmetric information.

Key Points

The study aims to investigate how asymmetric information in debt markets affects investment decisions of financially distressed firms.
Estimated the Euler equation of an optimizing investment model.
Compared model performance with and without considering debt constraints.
Analyzed data by grouping firms based on financial distress measures.
Including a debt constraint significantly improved the Euler equation's fit.
The standard Euler equation performed well for unconstrained groups but was rejected for constrained groups.
Findings suggest that asymmetric information critically influences investment decisions in unhealthy firms.

Cite This Study

Toni M. Whited (1992) studied this question.

synapsesocial.com/papers/6a102b18d8c5cf602efdcace https://doi.org/10.2307/2328946

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Implication

Randomized trial reveals the impact of debt constraints on investment allocation in financially unhealthy firms, indicating significant effects of asymmetric information.

Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data

Discussion

Member takes

Implication

Key Points

Cite This Study

Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data

Discussion

Member takes

Implication

Key Points

Cite This Study

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