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Credit vs. demand constraints: The determinants of US firm-level investment over the business cycles from 1977 to 2011

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  • Schoder, Christian

Abstract

The paper studies empirically how relative supply and demand conditions on the capital market affected US firm-level investment over the business cycles from 1977 to 2011. A dynamic econometric specification of capital accumulation including sales growth, Tobin's q, the cash flow-capital ratio and the cost of capital as covariates is fitted by a rolling window System GMM estimator using quarterly data on publicly traded US corporations in order to obtain time-varying coefficients. We find that the investment effects of the variables capturing the demand-side of the capital market, i.e. sales growth and Tobin's q, behave counter-cyclically, whereas this does not hold for the investment effects of supply-side variables such as cash flow or the cost of capital. Our results suggest that investment was typically driven by adverse demand rather than supply conditions on the capital market during the most severe recessions.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 26 (2013)
Issue (Month): C ()
Pages: 1-27

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Handle: RePEc:eee:ecofin:v:26:y:2013:i:c:p:1-27

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Web page: http://www.elsevier.com/locate/inca/620163

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Keywords: Investment; Credit constraints; Business cycles; Panel estimation; System GMM;

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Cited by:
  1. Iorio, Francesca Di & Fachin, Stefano, 2014. "Savings and investments in the OECD, 1970–2007: A test of panel cointegration with regime changes," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 28(C), pages 59-76.
  2. Christian R. Proaño & Christian Schoder & Willi Semmler, 2014. "Financial Stress, Sovereign Debt and Economic Activity in Industrialized Countries: Evidence from Dynamic Threshold Regressions," Department of Economics Working Papers wuwp167, Vienna University of Economics, Department of Economics.
  3. Musgrave, Ralph S., 2014. "The Solution is Full Reserve / 100% Reserve Banking," MPRA Paper 57955, University Library of Munich, Germany.

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