The Impact of Firms’ Financial Position on Fixed Investment and Employment. An Analysis for Spain

30 Pages Posted: 12 Apr 2017

Date Written: April 11, 2017

Abstract

Using a large sample of Spanish companies, this paper investigates the impact that firms’ financial health has on their investment and employment decisions. The results indicate that firms’ financial position is important for explaining firms’ capital expenditures and their employment levels, since cash flow, indebtedness and the debt burden appear to be relevant for explaining investment and employment dynamics. Likewise, the results obtained point to a non-linear impact of financial position on these decisions, this being larger for companies in a less sound financial situation, and suggest that the role of financial factors in explaining investment and employment dynamics is likely to be greater in recessionary periods.

Keywords: financial position, investment, employment, panel data

JEL Classification: C33, E22, E24, E44, G32, J23

Suggested Citation

Herranz González, Fátima and Martinez-Carrascal, Carmen, The Impact of Firms’ Financial Position on Fixed Investment and Employment. An Analysis for Spain (April 11, 2017). Banco de Espana Working Paper No. 1714, Available at SSRN: https://ssrn.com/abstract=2951061 or http://dx.doi.org/10.2139/ssrn.2951061

Fátima Herranz González (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Carmen Martinez-Carrascal

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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