pset2 - Econ 138 Problem Set #2 Ulrike Malmendier February...

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Econ 138 Problem Set #2 Ulrike Malmendier February 12, 2008 Due: February 19, 2008 Part 1. In this part of the Problem Set, you are asked to investigate the empirical relationship between investment and cash f ow. As discussed in class, empirical studies suggest that the amount F rms invest depends on the availability of internal funding (cash f ow) rather than on the quality of the investment project. In the F rst part of this problem set, you are asked to provide some empirical evidence of this stylized fact. For this problem set, you will need to use both the Compustat database on WRDS and Stata. ( Hint: You will need to use stock price data to calculate the market value of F rms. Finance researchers typically use the CRSP database to download high-frequency (e.g., daily) stock-price data. However, for the purpose of this exercise it is su cient to use the annual stock price data, which is available in COMPUSTAT.) Using data on the “universe of F rms” (the entire database) from 1996 to 2006, you are asked to analyze the relationship between investment (capital expenditures), normalized by
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This note was uploaded on 04/02/2008 for the course ECON 138 taught by Professor Malmendier during the Spring '08 term at University of California, Berkeley.

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pset2 - Econ 138 Problem Set #2 Ulrike Malmendier February...

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