Vishny, and participants in the Junior Faculty lunch group at the University of Chicago, the Finance seminar at UCLA, and the NBER Summer Institute for usefi.d comments. Jayanta Sen and Alfi-ed Shang provided excellent research assistance. A preliminary study was supported by the World Bank. We gratefully acknowledge financial support from NSF grant #SBR-9423645. This paper is part of NBER's research programs in Corporate Finance and Economic Fluctuations and Growth. Any opinions expressed are those of the authors and not those of the National Bureau of Economic Research.

and the 1994 WFA meetings for comments. We are indebted to Eduardo Gonzales for excellent research assistance, and Andrew Alford for invaluable help in getting us acquainted with Global Vantage. This paper incorporates part of a C.R.S.P. working paper entitled "Notes on International Capital Structure". This paper is part of NBER's research program in Corporate Finance. Any opinions expressed are those of the authors and not those of the National Bureau of Economic Research.

No. This paper investigates the relationship between nancing constraints and investment-cash ow sensitivities by analyzing the rms identi ed by Fazzari, Hubbard, and Petersen as having unusually high investment-cash ow sensitivities. We nd that rms that appear less nancially constrained exhibit signi cantly greater sensitivities than rms that appear more nancially constrained. We nd this pattern for the entire sample period, subperiods, and individual years. These results (and simple theoretical arguments) suggest that higher sensitivities cannot be interpreted as evidence that rms are more nancially constrained. These ndings call into question the interpretation of most previous research that uses this methodology. "Our nancial position is sound . . . Most of the company's funds are generated by operations and these funds grew at an average annual rate of 29% [over the past 3 years]. Throughout the company's history this self-nancing concept has not been a constraint on the company's growth. With recent growth restrained by depressed economic conditions, the company's net cash position has grown substantially" [Hewlett-Packard 1982 Annual Report].A large nance and macroeconomics literature studies the relation between corporate investment and cash ow to test for the presence and importance of nancing constraints. Beginning with "Financing Constraints and Corporate Investment" by Fazzari, Hubbard, and Petersen [1988], (hereinafter FHP [1988]), these studies divide a sample of rms according to an a priori measure of nancing constraints and compare the investment-