Finance, Uncertainty and Investment: Assessing the Gains and Losses of a Generalized Non Linear Structural Approach Using Belgian Panel Data

National Bank of Belgium Working Paper No. 26

38 Pages Posted: 18 Oct 2010

See all articles by Marcel Gerard

Marcel Gerard

Facultes Universitaires Catholiques de Mons (FUCAM); CESifo (Center for Economic Studies and Ifo Institute)

Frédéric Verschueren

Government of the Kingdom of Belgium - Federal Planning Bureau (FPB)

Date Written: May 1, 2002

Abstract

Using panel data for 2,329 Belgian firms observed between 1985 and 1999, this paper aims at getting a better understanding of Belgian firms' investment behavior. Two main and interrelated topics are investigated: the link between financial structure and investment decision, on the one hand, the effect of uncertainty on the level of investment, on the other hand. Such research sets forth the effect of some key variables, both in terms of level and volatility. The study is conducted within a structural approach but reduced form equations are also estimated. A generalised dynamic effect is investigated by introducing adjustment costs related through time. From that study, it clearly appears that small firms and high debt level firms are more sensitive to interest rate and cash flow. However, no role for investment price volatility is observed.

Keywords: Investment, debt constraint, panel data, GMM

JEL Classification: C23; C33, E22

Suggested Citation

Gerard, Marcel and Verschueren, Frédéric, Finance, Uncertainty and Investment: Assessing the Gains and Losses of a Generalized Non Linear Structural Approach Using Belgian Panel Data (May 1, 2002). National Bank of Belgium Working Paper No. 26. Available at SSRN: https://ssrn.com/abstract=1692685 or http://dx.doi.org/10.2139/ssrn.1692685

Marcel Gerard (Contact Author)

Facultes Universitaires Catholiques de Mons (FUCAM) ( email )

Chaussee de Binche, 151
Mons 7000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Frédéric Verschueren

Government of the Kingdom of Belgium - Federal Planning Bureau (FPB) ( email )

Brussels, 1000
Belgium

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