publication . Article . Other literature type . 2009

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

Joshua R. Pierce; C. Edward Fee; Charles J. Hadlock;
Open Access
  • Published: 01 Jun 2009 Journal: The Review of Financial Studies, volume 22, issue 6 6, pages 2,361-2,392
We find a significant positive relation between a firm's advertising spending in the United States and its contemporaneous foreign cash flow. This relation holds even after controlling for factors that should be related to the optimal level of domestic advertising, and it is stronger for subsets of firms that we expect to be relatively more financially constrained. Our evidence supports the hypothesis that there is a causal and economically substantial link between cash flow and investment spending, even for intangible investments such as advertising. Our evidence also suggests that firms have active internal capital markets in which capital is moved across geog...
free text keywords: Economics and Econometrics, Accounting, Finance, Economics, Multinational corporation, Internal financing, Geographic regions, Financial capital, Capital market, Advertising, Cash flow, Operating cash flow, business.industry, business
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