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Internal finance and corporate investment: Belgian evidence with panel data

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  • Barran, Fernando
  • Peeters, Marga

Abstract

In this paper the corporate investment decision under financial restrictions is investigated with Belgian firm data from 1984 to 1992. An investment Euler equation is derived from a dynamic optimization model with debt ceilings and an elastic credit supply. The model is estimated by GMM for different firm groups. An important aspect is that the sample is split according to a firm’s association with coordination centers. These centers have become the major external funding source of corporate investment in Belgium since 1986. The estimation results show the dependence of corporate investment on financial factors, both for non-coordination center as well as coordination center firms.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 15 (1998)
Issue (Month): 1 (January)
Pages: 67-89

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Handle: RePEc:eee:ecmode:v:15:y:1998:i:1:p:67-89

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Web page: http://www.elsevier.com/locate/inca/30411

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References

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  1. Toni M. Whited, 1990. "Debt, liquidity constraints, and corporate investment: evidence from panel data," Finance and Economics Discussion Series 114, Board of Governors of the Federal Reserve System (U.S.).
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. repec:fth:baesse:9506 is not listed on IDEAS
  5. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  7. Ángel Estrada & Javier Vallés, 1995. "Investment and Financial Costs: Spanish Evidence with Panel Data," Banco de Espa�a Working Papers 9506, Banco de Espa�a.
  8. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  9. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
  10. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  11. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1993. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc.
  12. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  13. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May.
  14. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  15. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  16. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
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Cited by:
  1. Peeters, Marga, 1997. "Does demand and price uncertainty affect Belgian and Spanish corporate investment?," MPRA Paper 23604, University Library of Munich, Germany.
  2. repec:hal:journl:halshs-00112522 is not listed on IDEAS
  3. Chatelain, Jean-Bernard & Teurlai, Jean-Christophe, 2001. "Pitfalls in investment Euler equations," Economic Modelling, Elsevier, vol. 18(2), pages 159-179, April.
  4. Butzen, Paul & Fuss, Catherine & Vermeulen, Philip, 2001. "The interest rate and credit channels in Belgium: An investigation with micro-level firm data," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-1, International Conferences on Panel Data.
  5. Jean-Bernard Chatelain, 2003. "Structural Modelling of Financial Constraints on Investment: Where Do We Stand?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00112522, HAL.
  6. Jean-Christophe Teurlai, 2003. "Investissement corporel et coût du financement externe : identification de différents régimes et rôle du crédit-bail," Économie et Prévision, Programme National Persée, vol. 157(1), pages 51-70.
  7. Chatelain, Jean-Bernard & Teurlai, Jean-Christophe, 2006. "Euler investment equation, leverage and cash flow misspecification: An empirical analysis on a panel of French manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 361-374, June.
  8. Kakes, Jan, 1998. "Monetary transmission and business cycle asymmetry," Research Report 98C36, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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