Abstract

In this study I utilize existing literature to identify financially constrained firms based on asset size and measure their investment behavior over the course of six U.S. recessions. I utilize a time measurement method to separate the distinct time periods that lead into a recession, contain the NBER (Note 1) peak, as well as the year after. I find that constrained firms have a significantly larger negative change in their fixed investment during the year leading into a NBER Peak as well as the year that contains the NBER Peak. I separate the most recent Great Recession to capture any unique differences in how firms responded to the economic downturn of 2007. I find that constrained firms had no significantly different investment behavior during the recession of 2007 compared to unconstrained firms, but the sample as a whole increased investment spending while coming out of the recession when compared to the previous five. There is nothing uniquely different with how constrained firms behaved during the year prior to, during the peak, and the year following the peak of 2007.

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