Investment, Financing Constraints, and Internal Capital Markets: Evidence from the Advertising Expenditures of Multinational Firms

Cash holdings and R&D smoothing

“…We also split firms based on the number of years since their first stock price appears in Compustat, typically the year of their IPO. Firm age is likely to be strongly correlated with asymmetric information problems and has been used as a proxy for the presence of financing frictions in a number of recent studies (e.g., Brown et al, 2009;Fee et al, 2009;Hadlock and Pierce, 2009). 6 We classify firms as "young" if their average age in a given sample period is less than or equal fifteen.…”

Why has the investment-cash flow sensitivity declined so sharply? Rising R&D and equity market developments

“…Firm age is likely to be strongly correlated with asymmetric information problems and has been used as a proxy for the presence of financing frictions in a number of recent studies (e.g., Rauh, 2006;Brown et al, 2009;Fee et al, forthcoming). 18 In addition, the impact of developments in equity markets should be most important for firms in the early phase of their life-cycle.…”

The value of corporate financial flexibility in emerging countries

“…A better understanding of the effect of financial flexibility on firm behavior in emerging countries is important given the rapid globalization of the world economy in recent years. Firms with international operations have become relatively common nowadays and there is evidence that even large multinational firms are not immune from the risks associated with the underdeveloped capital markets in developing economies (Fee et al, 2009). Thus, an understanding of the effect of financial flexibility in emerging countries has important practical implications for international firms that have a presence in these countries.…”