Suppose that, when the price of steel drops, steel companies tend to cut back on investment in their non- steel activities more than other firms in these same non- steel activities. This would support the idea that:

Question

Quizplus · Accepted Answer

The fact that steel companies tend to cut back on investment in their non-steel activities more than other firms in these same non-steel activities when the price of steel drops suggests that cash flow matters for investment decisions. This indicates that firms are likely to prioritize investments that generate higher cash flow when facing financial constraints, including when the price of a key input such as steel decreases.

Suppose That, When the Price of Steel Drops, Steel Companies