IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The Dynamic Relation between Financial Positions and Investment: Evidence from Company Account Data

  • Stanca, Luca
  • Gallegati, Mauro

A key feature of recent financial business cycle theories is the existence of a two-way dynamic relation between financial factors and investment: over time firms' financial positions are affected by, and in turn affect, investment decisions. This paper investigates the dynamic interaction between financial conditions and investment by estimating and testing vector autoregressions on company account panel data for US manufacturing firms, while considering explicitly sectional and time heterogeneity. The results show that indicators of liquidity and solvency contain significant predictive information for investment at the firm level. We also find evidence of both cross-sectional and time heterogeneity: the role played by financial factors is significantly more important for highly leveraged than for low-debt firms, capital market frictions are shown to have asymmetric effects over the business cycle, displaying a larger impact in contractions than in expansions. Overall, the evidence supports the hypothesis that capital market imperfections have an important role in explaining aggregate cyclical dynamics. Copyright 1999 by Oxford University Press.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Article provided by Oxford University Press in its journal Industrial & Corporate Change.

Volume (Year): 8 (1999)
Issue (Month): 3 (September)
Pages: 551-72

as
in new window

Handle: RePEc:oup:indcch:v:8:y:1999:i:3:p:551-72
Contact details of provider: Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Web page: http://icc.oupjournals.org/
Email:

Order Information: Web: http://www.oup.co.uk/journals

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oup:indcch:v:8:y:1999:i:3:p:551-72. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)

or (Christopher F. Baum)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.