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Some evidence on financial factors in the determination of aggregate business investment for the G7

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  • Professor E. Philip Davis

Abstract

Standard theories of investment behaviour have concentrated on the neoclassical and Tobin's Q approaches, with most empirical work on aggregate data focusing on the former. In contrast, a separate literature on monetary transmission, centred on the credit channel and financial accelerator effects, has highlighted the potential impact of credit market imperfections in constraining the investment behaviour of firms. In this paper we present evidence at a macro level for the G7 countries that a broad range of financial variables, consistent with the valuation ratio, financial accelerator and credit channel approaches, are relevant determinants of business fixed investment above those variables normally included in traditional macroeconomic investment functions. The results indicate a wider incidence of these financial effects on investment than the existing literature, focused as it is on the US, would otherwise indicate.

Suggested Citation

  • Professor E. Philip Davis, 2001. "Some evidence on financial factors in the determination of aggregate business investment for the G7," National Institute of Economic and Social Research (NIESR) Discussion Papers 187, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:187
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    Citations

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    Cited by:

    1. Joseph P. Byrne & E. Philip Davis, 2005. "Investment and Uncertainty in the G7," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(1), pages 1-32, April.
    2. Florian Pelgrin & Sebastian Schich, 2002. "Panel Cointegration Analysis of the Finance-Investment Link in OECD Countries," Documents de Travail de l'OFCE 2002-02, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Yann Guy, 2010. "Industrial Major Firms Investments in a Financialized Context," Working Papers hal-00402021, HAL.
    4. Davis, E. Philip & Stone, Mark R., 2004. "Corporate financial structure and financial stability," Journal of Financial Stability, Elsevier, vol. 1(1), pages 65-91, September.
    5. Michael McMahon & Gabriel Sterne & Jamie Thompson, 2005. "The role of ICT in the global investment cycle," Bank of England working papers 257, Bank of England.
    6. Mickaël Clévenot & Yann Guy & Jacques Mazier, 2009. "Equity and debt in a financialised economy: the French case," Working Papers hal-00435685, HAL.
    7. 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.

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