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A panel study of investment: sales, cash flow, the cost of capital, and leverage
This article compares the investment spending for each of 396 corporations during the late 1980s and early 1990s to projections of their spending derived from several basic models of investment. According to these models, capital spending, on average, adheres closely to output, profits, and the cost of capital. The pattern of average forecast errors derived from the statistical models does not correspond very closely to measures of indebtedness, liquidity, size, or type of business. It is not surprising that these variables should influence capital spending so little, once the general ...