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A recent paper in this Journal by Kaplan and Zingales reexamines a subset of �rms from work of Fazzari, Hubbard, and Petersen and criticizes the usefulness of investment-cash �ow sensitivities for detecting �nancing constraints. We show that the Kaplan and Zingales theoretical model fails to capture the approach employed in the literature and thus does not provide an effective critique. Moreover, we describe why their empirical classi�cation system is �awed in identifying both whether �rms are constrained and the relative degree of constraints across �rm groups. We conclude that their results do not support their conclusions about the usefulness of investment-cash �ow sensitivities. In a recent paper in this Journal Kaplan and Zingales 1997, hereinafter KZ argue that investment-cash �ow sensitivities do not provide useful evidence about the presence of �nancing constraints. Because KZ use a subset of the same �rms and the same regressions as Fazzari, Hubbard, and Petersen 1988, hereinafter FHP and claim page 176 that FHP ‘‘can legitimately
Fazzari et al. (Mon,) studied this question.