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Investment, Liquidity Constraints and Bank Relationships: Evidence from German Manufacturing Firms

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  • Elston, Julie Ann

Abstract

This paper presents evidence supporting the theory that informational and incentive problems in capital markets affect firm investment. This hypothesis is tested by estimating investment equations for two groups of German manufacturing firms. The first group of firms are those with bank ownership, suggesting lower costs to banks of obtaining information and better access to capital for the firm. The second group contains independent firms, that are expected to face greater external financing costs and liquidity constraints. Findings support the hypothesis of greater investment sensitivity to liquidity constraints, as well as increased investment sensitivity over time, for the group of independent firms.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1329.

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Date of creation: Jan 1996
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Handle: RePEc:cpr:ceprdp:1329

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Keywords: Banks; Germany; Investment; Liquidity;

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Cited by:
  1. Elston, Julie Ann & Goldberg, Lawrence G., 2003. "Executive compensation and agency costs in Germany," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1391-1410, July.
  2. Sonia Ruano & Robert M. Townsend & Jesus Saurina & Alexander Karaivanov, 2010. "No Bank, One Bank, Several Banks: Does It Matter for Investment?," 2010 Meeting Papers 669, Society for Economic Dynamics.
  3. Brichs Serra, Elisabet & Buch, Claudia M. & Nienaber, Thomas, 1997. "The role of banks: Evidence from Germany and the US," Kiel Working Papers 802, Kiel Institute for the World Economy.
  4. Franz R. Hahn, 2002. "The Politics of Financial Development. The Case of Austria," WIFO Working Papers, WIFO 187, WIFO.
  5. Davis, E. Philip, 2002. "Institutional investors, corporate governance and the performance of the corporate sector," Economic Systems, Elsevier, vol. 26(3), pages 203-229, September.
  6. Fohlin, Caroline, 1999. "Universal Banking in Pre-World War I Germany: Model or Myth?," Explorations in Economic History, Elsevier, Elsevier, vol. 36(4), pages 305-343, October.
  7. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 257-280.
  8. Audretsch, David B. & Elston, Julie Ann, 2002. "Does firm size matter? Evidence on the impact of liquidity constraints on firm investment behavior in Germany," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(1), pages 1-17, January.
  9. Hans Joachim Voth, 2000. "With a bang, not a whimper: Pricking Germany's "stock market bubble" in 1927 and the slide into depression," Economics Working Papers 516, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Dietmar HARHOFF, 1998. "Are there Financing Constraints for R&D and Investment in German Manufacturing Firms," Annales d'Economie et de Statistique, ENSAE, issue 49-50, pages 421-456.
  11. Ongena, S. & Smith, D.C., 2000. "Bank relationships: A review," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80678, Tilburg University.
  12. Kakes, Jan, 1998. "Monetary transmission and business cycle asymmetry," Research Report 98C36, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  13. Jason G. Cummins & Kevin A. Hassett & Stephen D. Oliner, 1999. "Investment behavior, observable expectations, and internal funds," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1999-27, Board of Governors of the Federal Reserve System (U.S.).
  14. Hellwig, Martin, 2000. "Corporate Governance and the Financing of Investment for Structural Change," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 00-32, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  15. Kaiser, Ulrich, 2001. "Moving in and out of financial distress: evidence for newly founded service sector firms," ZEW Discussion Papers 01-09, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  16. Fuss, Catherine & Vermeulen, Philip, 2006. "The response of firms‘ investment and financing to adverse cash flow shocks: the role of bank relationships," Working Paper Series, European Central Bank 0658, European Central Bank.

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