Do relationships have limits? Banking relationships, financial constraints, and investment

Using detailed information on the debt structure of 250 publicly traded U.S . firms over the 1980-93 period, we find that the sensitivity of investment to internally generated funds increases with a firm's reliance on bank fin ancing. Bank-dependent firms also hold larger stocks of liquid assets and h ave lower dividend payout rates. However, the greater cash sensitivity of i nvestment for bank-dependent firms arises only for the largest capital expe nditures (relative to assets). For most levels of investment spending, bank -dependent firms appear to be slightly less cash-flow-constrained than firm s with access to public debt markets.