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The Impact of Financial Position on Investment: An Analysis for Non-Financial Corporations in the Euro Area


Carmen Martinez-Carrascal


Bank of Spain

Annalisa Ferrando


European Central Bank (ECB)

September 22, 2008

ECB Working Paper No. 943

Abstract:     
This paper analyses the impact that firms' financial position has on investment decisions using panel data from a large sample of non-financial corporations(around 120,000 firms) in six euro area countries (Belgium, Germany, France, Italy, the Netherlands and Spain). The results indicate that financial position is important to explain capital expenditures, as financial pressure appears relevant in explaining investment dynamics when it is proxied by cash flow, indebtedness and debt burden. The results also show differences in the sensitivity of investment rates to changes in financial pressure across countries, which appears to be especially large in the Netherlands and Italy and relatively small in Germany.

Number of Pages in PDF File: 39

Keywords: Financial pressure, fixed investment, balance sheet channel, panel data

JEL Classification: C33, E22, G32, J23

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Date posted: September 23, 2008 ; Last revised: September 25, 2008

Suggested Citation

Martinez-Carrascal, Carmen and Ferrando, Annalisa, The Impact of Financial Position on Investment: An Analysis for Non-Financial Corporations in the Euro Area (September 22, 2008). ECB Working Paper No. 943. Available at SSRN: http://ssrn.com/abstract=1268868

Contact Information

Carmen Martinez-Carrascal (Contact Author)
Bank of Spain ( email )
Alcala 50
Madrid 28014
Spain
Annalisa Ferrando
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
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