This paper investigates whether investment-cash flow sensitivities are useful measures of financing constraints. Using a sample of firms identified by Fazzari, Hubbard, and Petersen (FHP) as having unusually high investment-cash flow sensitivities, the authors find that firms that appear less financially constrained exhibit significantly greater sensitivities than those that appear more constrained. This pattern holds across the entire sample period, subperiods, and individual years. These results challenge the interpretation of previous research that uses investment-cash flow sensitivities to infer financing constraints. The paper analyzes a sample of 49 low-dividend firms identified by FHP as financially constrained. By examining annual reports, management discussions, and financial data, the authors assess the availability and demand for funds for each firm. They find that in only 15% of firm-years is there any question about a firm's ability to access internal or external funds to increase investment. In 85% of firm-years, firms could have increased investment if they had chosen to do so. Almost 40% of the sample firms, including Hewlett-Packard, could have increased investment in every year of the sample period. The authors find that firms classified as less financially constrained exhibit significantly greater investment-cash flow sensitivities than those classified as more constrained. This pattern is robust to different criteria for classifying constrained and unconstrained firms. The results suggest that investment-cash flow sensitivities do not necessarily increase with the degree of financing constraints, contradicting the assumption in previous research. The paper provides both theoretical and empirical evidence that investment-cash flow sensitivities are not reliable measures of the differential cost between internal and external finance. The authors argue that previous research using this methodology is flawed and that their findings call into question the interpretation of most previous research. The paper concludes that investment-cash flow sensitivities do not necessarily reflect financing constraints and that the relationship between investment-cash flow sensitivities and financing constraints is nonmonotonic.This paper investigates whether investment-cash flow sensitivities are useful measures of financing constraints. Using a sample of firms identified by Fazzari, Hubbard, and Petersen (FHP) as having unusually high investment-cash flow sensitivities, the authors find that firms that appear less financially constrained exhibit significantly greater sensitivities than those that appear more constrained. This pattern holds across the entire sample period, subperiods, and individual years. These results challenge the interpretation of previous research that uses investment-cash flow sensitivities to infer financing constraints. The paper analyzes a sample of 49 low-dividend firms identified by FHP as financially constrained. By examining annual reports, management discussions, and financial data, the authors assess the availability and demand for funds for each firm. They find that in only 15% of firm-years is there any question about a firm's ability to access internal or external funds to increase investment. In 85% of firm-years, firms could have increased investment if they had chosen to do so. Almost 40% of the sample firms, including Hewlett-Packard, could have increased investment in every year of the sample period. The authors find that firms classified as less financially constrained exhibit significantly greater investment-cash flow sensitivities than those classified as more constrained. This pattern is robust to different criteria for classifying constrained and unconstrained firms. The results suggest that investment-cash flow sensitivities do not necessarily increase with the degree of financing constraints, contradicting the assumption in previous research. The paper provides both theoretical and empirical evidence that investment-cash flow sensitivities are not reliable measures of the differential cost between internal and external finance. The authors argue that previous research using this methodology is flawed and that their findings call into question the interpretation of most previous research. The paper concludes that investment-cash flow sensitivities do not necessarily reflect financing constraints and that the relationship between investment-cash flow sensitivities and financing constraints is nonmonotonic.