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

Author

Listed:
  • Ignacio Hernando

    () (Banco de España)

  • Carmen Martínez-Carrascal

    () (Banco de España)

Abstract

This paper analyses the impact of alternative measures of firms' financial health on their investment and employment decisions. The emphasis is on the analysis of disaggregated data on such financial indicators. For this purpose, itemised data from a sample of the non-financial firms reporting to the Banco de España Central Balance Sheet Data Office Annual Database for the period 1985-2001 is used. We find that corporate financial position –proxied by alternative indicators– affects business activity and that this impact is non-linear and becomes relatively more intense when financial pressure exceeds a certain threshold. We also construct, using different financial variables, composite indicators that summarize the non-linear impact that the financial position has on investment and employment. Our results suggest that the use of firm-level data is particularly relevant in episodes where the financial pressure on a significant number of firms reaches levels at which it has a pronounced influence on real activity. In these episodes, indicators based on aggregate data may not reliably reflect the system's financial soundness since they do not adequately reflect the vulnerability of the most fragile companies.

Suggested Citation

  • Ignacio Hernando & Carmen Martínez-Carrascal, 2003. "The impact of financial variables on firms' real decisions: evidence from Spanish firm-level data," Working Papers 0319, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0319
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Petra Gerlach-Kristen & Brian O'Connell & Conor O'Toole, 2015. "Do Credit Constraints Affect SME Investment and Employment?," The Economic and Social Review, Economic and Social Studies, vol. 46(1), pages 51-86.
    2. Catherine Fuss & Ladislav Wintr, 2012. "Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(3), pages 241-268.
    3. Fátima Herranz González & Carmen Martínez-Carrascal, 2017. "The impact of firms’ financial position on fixed investment and employment. An analysis for Spain," Working Papers 1714, Banco de España;Working Papers Homepage.
    4. Roberto Antonietti & Giulio Cainelli & Monica Ferrari & Stefania Tomasini, 2014. "Banks, industrial relatedness and firms’ investments," Papers in Evolutionary Economic Geography (PEEG) 1402, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2014.
    5. David Cornille & François Rycx & Ilan Tojerow, 2017. "The employment consequences of SMEs’ credit constraints in the wake of the great recession," Working Paper Research 333, National Bank of Belgium.
    6. Cornille, David & Rycx, François & Tojerow, Ilan, 2017. "The employment consequences of SMEs’ credit constraints in the wake of the Great Recession," Working Paper Series 2117, European Central Bank.
    7. Chiara Coluzzi & Annalisa Ferrando & Carmen Martínez-Carrascal, 2009. "Financing obstacles and growth: An analysis for euro area non-financial corporations," Working Papers 0836, Banco de España;Working Papers Homepage.
    8. Ferrando, Annalisa & Martinez-Carrascal, Carmen, 2008. "The impact of financial position on investment: an anlysis for non-financial corporations in the euro area," Working Paper Series 943, European Central Bank.
    9. Gebauer, Stefan & Setzer, Ralph & Westphal, Andreas, 2017. "Corporate debt and investment: a firm level analysis for stressed euro area countries," Working Paper Series 2101, European Central Bank.
    10. Cornille, David & Rycx, Francois & Tojerow, Ilan, 2018. "Heterogeneous Effects of Credit Constraints on SMEs' Employment: Evidence from the Great Recession," IZA Discussion Papers 11257, Institute for the Study of Labor (IZA).
    11. José Manuel Marqués & Fernando Nieto & Ana del Río, 2005. "Una aproximación a los determinantes de la financiación de las sociedades no financieras en España," Working Papers 0535, Banco de España;Working Papers Homepage.
    12. Roberto Antonietti & Giulio Cainelli & Monica Ferrari & Stefania Tomasini, 2015. "Banks, related variety and firms’ investments," Letters in Spatial and Resource Sciences, Springer, vol. 8(1), pages 89-99, March.
    13. Peter Egger & Christian Keuschnigg, 2009. "Corporate Finance and Comparative Advantage," University of St. Gallen Department of Economics working paper series 2009 2009-04, Department of Economics, University of St. Gallen.

    More about this item

    Keywords

    financial conditions; fixed investment; employment;

    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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