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The impact of financial variables on firms' real decisions: Evidence from Spanish firm-level data

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  • Hernando, Ignacio
  • Martínez-Carrascal, Carmen
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    Abstract

    This paper analyses the impact of alternative measures of firms' financial health on their investment and employment decisions, using a large-scale panel dataset of Spanish firms over the period 1985-2001. The paper pays particular attention to the non-linear nature of the relationship between firms' financial position and their demand of productive factors. Our results show that corporate financial position affects business activity and that this impact is more intense when financial pressure exceeds a certain threshold. Alternative functional forms to capture the non-linearity of this relationship have also been analyzed and cannot be discarded.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 30 (2008)
    Issue (Month): 1 (March)
    Pages: 543-561

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    Handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:543-561

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    Web page: http://www.elsevier.com/locate/inca/622617

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    References

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    1. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    2. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2010. "Investment, R&D and Financial Constraints in Britain and Germany," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 433-460 National Bureau of Economic Research, Inc.
    3. Nickell, S. & Nicolitsas, D., 1995. "How Does Financial Pressure Affect Firms," Economics Series Working Papers 99170, University of Oxford, Department of Economics.
    4. 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.
    5. Andrew Benito & Ignacio Hernando, 2002. "Extricate: Financial Pressure and Firm Behaviour in Spain," Banco de Espa�a Working Papers 0227, Banco de Espa�a.
    6. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
    7. Andrew Benito & Garry Young, 2002. "Financial pressure and balance sheet adjustment by UK firms," Bank of England working papers 168, Bank of England.
    8. Kazuo Ogawa, 2003. "Financial Distress and Employment: The Japanese Case in the 90s," NBER Working Papers 9646, National Bureau of Economic Research, Inc.
    9. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
    10. Vermeulen, Philip, 2002. " Business Fixed Investment: Evidence of a Financial Accelerator in Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 217-35, July.
    11. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
    12. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
    13. Nickell, Stephen & Wadhwani, Sushil B, 1989. "Employment Determination in British Industry: Investigations Using Micro-Data," CEPR Discussion Papers 320, C.E.P.R. Discussion Papers.
    14. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
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    Cited by:
    1. Martinez-Carrascal, Carmen & Ferrando, Annalisa, 2008. "The impact of financial position on investment: an anlysis for non-financial corporations in the euro area," Working Paper Series 0943, European Central Bank.
    2. Chiara Coluzzi & Annalisa Ferrando & Carmen Martínez-Carrascal, 2009. "Financing obstacles and growth: An analysis for euro area non-financial corporations," Banco de Espa�a Working Papers 0836, Banco de Espa�a.
    3. Coluzzi, Chiara & Ferrando, Annalisa & Martinez-Carrascal, Carmen, 2009. "Financing obstacles and growth: an analysis for euro area non-financial corporations," Working Paper Series 0997, European Central Bank.
    4. Peter Egger & Christian Keuschnigg, 2009. "Corporate Finance and Comparative Advantage," University of St. Gallen Department of Economics working paper series 2009 2009-04, Department of Economics, University of St. Gallen.

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