This paper examines the relationship between financial constraints, asset tangibility, and corporate investment. The authors argue that when firms can pledge their assets as collateral, investment and borrowing become endogenous. They show that this credit multiplier has an important impact on investment when firms face credit constraints: investment-cash flow sensitivities are increasing in the degree of tangibility of constrained firms' assets. If firms are unconstrained, however, investment-cash flow sensitivities are unaffected by asset tangibility. Crucially, asset tangibility itself may determine whether a firm faces credit constraints - firms with more tangible assets may have greater access to external funds. This implies that the relationship between capital spending and cash flows is non-monotonic in the firm's asset tangibility. The authors use a differences-in-differences approach to identify the effect of financing frictions on corporate investment. They compare the differential effect of asset tangibility on the sensitivity of investment to cash flow across different regimes of financial constraints. They implement this testing strategy on a large sample of manufacturing firms drawn from COMPUSTAT between 1985 and 2000. Their tests allow for the endogeneity of the firm's credit status, with asset tangibility influencing whether a firm is classified as credit constrained or unconstrained in a switching regression framework. The data strongly support their hypothesis about the role of asset tangibility on corporate investment under financial constraints. The authors develop and test a theoretical argument that allows one to identify whether financing imperfections affect firm investment behavior. They explore the idea that variables that increase a firm's ability to contract external finance may influence observed investment spending when investment demand is constrained by credit imperfections. One such variable is the tangibility of a firm's assets. Assets that are more tangible sustain more external financing, because tangibility mitigates contractibility problems — asset tangibility increases the value that can be recaptured by creditors in default states. Through a simple contracting model that draws on Kiyotaki and Moore (1997), they show that investment–cash flow sensitivities will be increasing in the tangibility of constrained firms' assets. In contrast, tangibility will have no effect on investment–cash flow sensitivities of financially unconstrained firms. Crucially, asset tangibility itself affects the credit status of the firm: firms with very tangible (pledgeable) assets are likely to become unconstrained. This implies a non-monotonic effect of tangibility on investment–cash flow sensitivities. The authors use a differences-in-differences approach to identify the effect of financing frictions on corporate investment. They compare the differential effect of asset tangibility on the sensitivity of investment to cash flow across different (endogenously determined) regimes of financial constraints. In contrast to Kaplan and Zingales (1997), they argue that investment–cash flow sensitivities can be used as a means to gauge the impact of financing frictions on real investment. However, the conditions under which identificationThis paper examines the relationship between financial constraints, asset tangibility, and corporate investment. The authors argue that when firms can pledge their assets as collateral, investment and borrowing become endogenous. They show that this credit multiplier has an important impact on investment when firms face credit constraints: investment-cash flow sensitivities are increasing in the degree of tangibility of constrained firms' assets. If firms are unconstrained, however, investment-cash flow sensitivities are unaffected by asset tangibility. Crucially, asset tangibility itself may determine whether a firm faces credit constraints - firms with more tangible assets may have greater access to external funds. This implies that the relationship between capital spending and cash flows is non-monotonic in the firm's asset tangibility. The authors use a differences-in-differences approach to identify the effect of financing frictions on corporate investment. They compare the differential effect of asset tangibility on the sensitivity of investment to cash flow across different regimes of financial constraints. They implement this testing strategy on a large sample of manufacturing firms drawn from COMPUSTAT between 1985 and 2000. Their tests allow for the endogeneity of the firm's credit status, with asset tangibility influencing whether a firm is classified as credit constrained or unconstrained in a switching regression framework. The data strongly support their hypothesis about the role of asset tangibility on corporate investment under financial constraints. The authors develop and test a theoretical argument that allows one to identify whether financing imperfections affect firm investment behavior. They explore the idea that variables that increase a firm's ability to contract external finance may influence observed investment spending when investment demand is constrained by credit imperfections. One such variable is the tangibility of a firm's assets. Assets that are more tangible sustain more external financing, because tangibility mitigates contractibility problems — asset tangibility increases the value that can be recaptured by creditors in default states. Through a simple contracting model that draws on Kiyotaki and Moore (1997), they show that investment–cash flow sensitivities will be increasing in the tangibility of constrained firms' assets. In contrast, tangibility will have no effect on investment–cash flow sensitivities of financially unconstrained firms. Crucially, asset tangibility itself affects the credit status of the firm: firms with very tangible (pledgeable) assets are likely to become unconstrained. This implies a non-monotonic effect of tangibility on investment–cash flow sensitivities. The authors use a differences-in-differences approach to identify the effect of financing frictions on corporate investment. They compare the differential effect of asset tangibility on the sensitivity of investment to cash flow across different (endogenously determined) regimes of financial constraints. In contrast to Kaplan and Zingales (1997), they argue that investment–cash flow sensitivities can be used as a means to gauge the impact of financing frictions on real investment. However, the conditions under which identification