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Is there evidence for the existence of a financial accelerator mechanism in the Portuguese manufacturing sector?

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  • Jorge Cunha

    (University of Minho)

Abstract

In recent times, due to developments in the field of information economics, there was a rationalization of the link between financial factors and fluctuations in economic activity (Bernanke et al. 1996; Gertler 1988). An issue that has been highlighted is the possibility that fluctuations in economic activity can be induced (or amplified) by fragilities in a firm's financial position-the so-called financial accelerator mechanism. Based on this reasoning, I aim to contribute to the empirical literature on this issue by testing the following three hypotheses: (a) the financial position of a firm is a major determinant of its capital investment decisions; (b) the financial position of a firm is more important for firms that face higher information problems in financial markets; and (c) the financial position of a firm is even more important for firms that face higher information problems in financial markets at times of economic recession. Aggregate data for 16 industrial sectors, covering a period of time from 1990 to 2005, was used in the empirical study. These data were obtained from the Central Balance-Sheet Database of the Portuguese Central Bank. In this database, economic and financial information on Portuguese nonfinancial firms is included.

Suggested Citation

  • Jorge Cunha, 2010. "Is there evidence for the existence of a financial accelerator mechanism in the Portuguese manufacturing sector?," Portuguese Stata Users' Group Meetings 2010 04, Stata Users Group.
    • Handle: RePEc:boc:psug10:04
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