Loughborough University. Department of Economics. Discussion Paper Series;WP 2010 - 07
Using comprehensive financial data on UK unquoted firms, we investigate whether technological differences of UK manufacturing industries influence the response of firms' capital-labour ratio (K/L) to changes in financial indicators under capital market imperfections. The results reveal that cash flow has a positive impact on the K/L ratio for constrained firms in high tech industries and a negative impact for firms with similar characteristics in low tech industries. Specifically, the sensitivity of the K/L ratio to cash flow not only depends on firms' net worth and financial frictions, but most importantly on firms' industry affiliation.
This working paper is also available at: http://ideas.repec.org/p/lbo/lbowps/2010-07.html