A panel study of investment: sales, cash flow, the cost of capital, and leverage
AbstractThis article compares the investment spending for each of 396 corporations during the late 1980s and early 1990s to projections of their spending derived from several basic models of investment. According to these models, capital spending, on average, adheres closely to output, profits, and the cost of capital. The pattern of average forecast errors derived from the statistical models does not correspond very closely to measures of indebtedness, liquidity, size, or type of business. It is not surprising that these variables should influence capital spending so little, once the general business climate (represented by sales or cash flow) has been taken into account. ; For the making of economic policy, the evidence suggests that the familiar macroeconomic incentives for investment would be no less effective today than they have been in the past. In particular, the volume of investment spending would appear to respond to monetary and fiscal policies in the customary way. Despite their potential differences, the models agree that monetary or fiscal policy must be unusually aggressive to increase investment spending substantially when the rate of growth of GDP is unusually low.
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Bibliographic InfoArticle provided by Federal Reserve Bank of Boston in its journal New England Economic Review.
Volume (Year): (1994)
Issue (Month): Jan ()
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- Charles W. Calomiris & Athanasios Orphanides & Steven A. Sharpe, 1994.
"Leverage as a State Variable for Employment, Inventory Accumulation, andFixed Investment,"
NBER Working Papers
4800, National Bureau of Economic Research, Inc.
- Charles W. Calomiris & Athanasios Orphanides & Steven A. Sharpe, 1994. "Leverage as a state variable for employment, inventory accumulation, and fixed investment," Finance and Economics Discussion Series 94-24, Board of Governors of the Federal Reserve System (U.S.).
- Geoffrey M. B. Tootell & Richard W. Kopcke & Robert K. Triest, 2001. "Investment and employment by manufacturing plants," New England Economic Review, Federal Reserve Bank of Boston, pages 41-58.
- Lang, Larry & Ofek, Eli & Stulz, Rene M., 1996.
"Leverage, investment, and firm growth,"
Journal of Financial Economics,
Elsevier, vol. 40(1), pages 3-29, January.
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