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Determinants of investment in tangible and intangible fixed assets

Author

Listed:
  • Miguel García-Posada

    (Banco de España)

  • Álvaro Menéndez

    (Banco de España)

  • Maristela Mulino

    (Banco de España)

Abstract

We investigate which firm characteristics are associated with investment in tangible and intangible fixed assets, paying special attention to the case of R&D, and which funding sources are used for each type of investment. Regarding firm characteristics, we find that younger and more profitable firms tend to invest more in all asset types. In the case of size, larger firms invest more in R&D and intangibles but less in tangible fixed assets. In addition, there is a concave relationship between leverage and investment. Regarding funding sources, we find that cash flow is the most important source of funding for intangibles and R&D, whereas financial debt is the most important funding source for tangible fixed assets. Stock issues are used to fund R&D and, especially, tangible fixed assets. Firms use cash holdings to smooth investment in R&D.

Suggested Citation

  • Miguel García-Posada & Álvaro Menéndez & Maristela Mulino, 2020. "Determinants of investment in tangible and intangible fixed assets," Occasional Papers 2004, Banco de España.
    • Handle: RePEc:bde:opaper:2004
    as

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    References listed on IDEAS

    as
    1. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2010. "Investment, R&D and Financial Constraints in Britain and Germany," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 433-460, National Bureau of Economic Research, Inc.
    2. Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2012. "Do financing constraints matter for R&D?," European Economic Review, Elsevier, vol. 56(8), pages 1512-1529.
    3. 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.
    4. 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.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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