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We analyze how the availability of internal funds affects a firm's investment. We show that under fairly standard assumptions, the relation is U-shaped: investment increases monotonically with internal funds if they are large but decreases if they are very low. We discuss the tradeoff that generates the U-shape, and argue that models predicting an always increasing relation are based on restrictive assumptions. Using a large data set, we find strong empirical support for our predictions. Our results qualify conventional wisdom about the effects of financial constraints on investment behavior, and help to explain seemingly conflicting findings in the empirical literature.

Under which circumstances do oligopolists have an incentive to share private information about a stochastic demand or stochastic costs? We present a general model which includes virtually all models of the existing literature on information sharing as special cases.The analysis reveals that in contrast to the apparent inconclusiveness of previous results some simple principles determining the incentives to share information can be obtained. Most existing results are generalised and some interpretations are corrected, leading to a single general theory of the topic.

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