Capital market imperfections: Informational asymmetries, financing constraints and New Zealand corporate investment behaviour

Abstract

Under the assumption of informational asymmetries between firms and investors in financial markets, the theoretical result that a firm's investment expenditure will be constrained by internal finance availability can be derived. This paper tests for such an internal‐finance constraint, using data for New Zealand firms. The results suggest that internal finance availability does constrain investment, but there is only weak evidence to conclude that this constraint arises out of the informational asymmetry postulated.

Notes

The Treasury, Wellington.