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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. 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.
  2. 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.
  3. 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.
  4. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 33-60, February.
  5. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  6. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 39(3), pages 575-92, July.
  8. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1425-60, September.
  9. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  10. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  11. 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.
  12. 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, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  13. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, American Finance Association, vol. 32(2), pages 371-87, May.
  14. 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.
  15. repec:fth:baesse:9506 is not listed on IDEAS
  16. 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, Elsevier, vol. 13(2), pages 187-221, June.
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Citations

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Cited by:
  1. Chatelain, Jean-Bernard & Teurlai, Jean-Christophe, 2001. "Pitfalls in investment Euler equations," Economic Modelling, Elsevier, Elsevier, vol. 18(2), pages 159-179, April.
  2. Paxil Butzen & Catherine Fuss & Philip Vermeulen, 2002. "The interest rate and crédit channels in Belgium: an investigation with micro-level firm data," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 45(3), pages 5-36.
  3. Peeters, Marga, 1997. "Does demand and price uncertainty affect Belgian and Spanish corporate investment?," MPRA Paper 23604, University Library of Munich, Germany.
  4. 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.
  5. repec:hal:journl:halshs-00112522 is not listed on IDEAS
  6. 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, Elsevier, vol. 28(2), pages 361-374, June.
  7. Kakes, Jan, 1998. "Monetary transmission and business cycle asymmetry," Research Report 98C36, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  8. 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.

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