The Impact of Financial Position on Investment: An Analysis for Non-Financial Corporations in the Euro Area
Bank of Spain
European Central Bank (ECB)
September 22, 2008
ECB Working Paper No. 943
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
Date posted: September 23, 2008 ; Last revised: September 25, 2008
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