Non-Tobin’s q in Tests for Financial Constraints to Investment

Liquidity constrained firms may be under two very well identified investment regimes, constrained and unconstrained. In this paper I derive theoretical investment equations for both regimes and discuss the consequences of ignoring the specific form of the liquidity constrained regime. I also show that expressing the investment equation as a function of Tobin’s q is by no means necessary in theory and in practice, in particular, it is not required to test for liquidity constraints. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.