Even though they totally disagree, those major studies on how money affects company investment are actually all equally correct.
SSRN · March 18, 2026 · 6301158
The Takeaway
Economists have long argued over how much an extra dollar of funding actually helps a company grow, with famous studies finding values ranging from zero to one. This paper reveals that the effect is actually binary: it is exactly one for cash-strapped firms and zero for others, meaning different research results are just reflecting the ratio of 'broke' companies in their specific sample rather than a fundamental economic law.
From the abstract
Three prominent studies (Rauh, 2006; Lemmon and Roberts, 2010; Bakke and Whited, 2012) all estimate the causal effect of financing on investment. They find sharply different values of zero, 0.65, and one. This paper explains why all three are correct. In a canonical investment model, the marginal response of investment to financing is binary. It is one for constrained firms, zero for unconstrained firms. The local average treatment effect recovers the share of constrained firms among compliers.