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

39 Pages Posted: 23 Sep 2008 Last revised: 25 Sep 2008

Carmen Martinez-Carrascal

Banco de España

Annalisa Ferrando

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: September 22, 2008

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.

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

JEL Classification: C33, E22, G32, J23

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: https://ssrn.com/abstract=1268868

Carmen Martinez-Carrascal (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Annalisa Ferrando

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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