This paper develops and estimates a model of firm-level fixed capital investment where firms may be unable to invest optimally due to liquidity and borrowing constraints. Firms rationally anticipate these constraints and make dynamically optimal investment decisions. Structural parameters are estimated using data from the Ukrainian manufacturing sector for the period 1993–1998. The estimation results suggest significant heterogeneity across industries, with 8%–29% of firms facing binding constraints on investment. These constraints are persistent over time. To make optimal investments, 24%–64% of firms must borrow to complement their own resources. The characteristics of constrained firms and the relationship between industry institutions and the level of financial constraints are discussed.