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

  • Hernando, Ignacio
  • Martínez-Carrascal, Carmen
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/B6X4M-4NCK259-2/1/b0c9ba0636819f73bd75f2b66aaa300d
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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    1. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    2. 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.
    3. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    4. Benito, Andrew & Garry Young, 2002. "Financial Pressure and Balance Sheet Adjustment by UK Firms," Royal Economic Society Annual Conference 2002 20, Royal Economic Society.
    5. Stephen Nickell & D Nicolitsas, 1995. "How Does Financial Pressure Affect Firms?," CEP Discussion Papers dp0266, Centre for Economic Performance, LSE.
    6. Kazuo Ogawa, 2003. "Financial Distress and Employment: The Japanese Case in the 90s," NBER Working Papers 9646, National Bureau of Economic Research, Inc.
    7. 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.
    8. Stephen BOND & Dietmar HARHOFF & John VAN REENEN, 2005. "Investment, R&D and Financial Constraints in Britain and Germany," Annales d'Economie et de Statistique, ENSAE, issue 79-80, pages 433-460.
    9. 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.
    10. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    11. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    12. 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.
    13. Vermeulen, Philip, 2000. "Business fixed investment: evidence of a financial accelerator in Europe," Working Paper Series 0037, European Central Bank.
    14. Andrew Benito & Ignacio Hernando, 2002. "Extricate: Financial Pressure and Firm Behaviour in Spain," Banco de Espa�a Working Papers 0227, Banco de Espa�a.
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