IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v58y2023ipcs1544612323009352.html
   My bibliography  Save this article

The effects of financial frictions on Slovenian companies: A panel VAR approach

Author

Listed:
  • Zabavnik, Darja
  • Verbič, Miroslav

Abstract

In this paper, we investigate the impact of imperfect financial markets on the business investment of Slovenian non-financial companies. We focus on exploring the borrower's balance sheet channel, through which companies’ worsening balance sheets, reduce the availability of external finance. The effects of exogenous shocks are, therefore, amplified through the financial accelerator mechanism and affect the overall economy. Using data from annual reports of Slovenian non-financial companies from 2005 to 2020, we estimate a panel VAR model on various sample definitions. The results confirm the existence of the balance sheet channel, as the impulse response of investment to cash flow shocks is statistically significant. This effect is especially noticeable during the period from 2006 to 2012. Our findings suggest that financial frictions affect the availability of external financing and, consequently, the investment activity of Slovenian non-financial companies. Policymakers should prioritize measures to ensure adequate external financing, particularly for financially constrained firms, to mitigate the negative impact of reduced economic activity during periods of financial distress and economic downturns.

Suggested Citation

  • Zabavnik, Darja & Verbič, Miroslav, 2023. "The effects of financial frictions on Slovenian companies: A panel VAR approach," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323009352
    DOI: 10.1016/j.frl.2023.104563
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612323009352
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2023.104563?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Balance sheet channel; Financial frictions; Business investment; Transmission channels; Panel VAR approach;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323009352. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.