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The impact of firms’ financial position on fixed investment and employment. An analysis for Spain

Author

Listed:
  • Fátima Herranz González

    (Banco de España)

  • Carmen Martínez-Carrascal

    () (Banco de España)

Abstract

Using a large sample of Spanish companies, this paper investigates the impact that firms’ financial health has on their investment and employment decisions. The results indicate that firms’ financial position is important for explaining firms’ capital expenditures and their employment levels, since cash flow, indebtedness and the debt burden appear to be relevant for explaining investment and employment dynamics. Likewise, the results obtained point to a non-linear impact of financial position on these decisions, this being larger for companies in a less sound financial situation, and suggest that the role of financial factors in explaining investment and employment dynamics is likely to be greater in recessionary periods.

Suggested Citation

  • 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.
  • Handle: RePEc:bde:wpaper:1714
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/17/Fich/dt1714e.pdf
    File Function: First version, April 2017
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    financial position; investment; employment; panel data;

    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
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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