Business Fixed Investment: Evidence of a Financial Accelerator in Europe

35 Pages Posted: 12 Dec 2002

Multiple version iconThere are 2 versions of this paper

Date Written: November 2000

Abstract

Financial accelerator theories imply that weak balance sheets can amplify adverse shocks on firm investment. This effect should be asymmetric, stronger in downturns than in upturns and stronger for small firms than for large firms. This paper provides empirical evidence of the presence of a financial accelerator in the four largest euro area economies: Germany, France, Italy and Spain. Using annual firm balance sheet data over the period 1983 - 1997 it is shown that weak balance sheets are more important in explaining investment during downturns than during upturns. It is further shown that the effects of the accelerator are largest for small firms.

Keywords: Financial Accelerator, Investment, Panel Data

JEL Classification: E22, E44

Suggested Citation

Vermeulen, Philip, Business Fixed Investment: Evidence of a Financial Accelerator in Europe (November 2000). ECB Working Paper No. 37. Available at SSRN: https://ssrn.com/abstract=355985

Philip Vermeulen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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