Financial constraints and capacity adjustment in the United Kingdom: evidence from a large panel of survey data
The interrelationship between financial constraints and firm activity is a hotly debated issue. The way firms cope with financial constraints is fundamental to the analysis of monetary transmission, of financial stability and of economic growth and development. The CBI Industrial Trends Survey contains detailed information on the financial constraints faced by a large sample of UK manufacturers. This paper uses the quarterly CBI Industrial Trends Survey firm-level data between January 1989 and October 1999. The cleaned sample contains 49,244 quarterly observations on 5,196 firms. The data set is presented and a new method of checking the informational content of the data is developed. The relationship between investment activity and financial constraints is ambivalent because both can affect each other and they are affected by the same kind of economic developments, so it is not clear which is driving the other. But the link between financial constraints faced by the firm and the prevalence and duration of capacity restrictions should be unambiguously positive. Looking at that relationship, two important results emerge. First, financially constrained firms take longer to close capacity gaps. This indicates that financial constraints do indeed play a part in the investment process. Second, small firms close their capacity gaps faster than large firms do, but financial constraints seem to be of higher relevance to their adjustment.
|Date of creation:||May 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hall, Bronwyn, 2002.
"The Financing of Research and Development,"
Department of Economics, Working Paper Series
qt5rf0x9gz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Bronwyn H. Hall, 2002. "The Financing of Research and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 35-51, Spring.
- Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar.
- Bronwyn H. Hall, 2002. "The Financing of Research and Development," NBER Working Papers 8773, National Bureau of Economic Research, Inc.
- Hall, Bronwyn H., 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series qt34c1c643, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Bronwyn H. Hall, 2003. "The Financing of Research and Development," Finance 0303003, EconWPA.
- von Kalckreuth, Ulf & Chirinko, Robert S. & Breitung, Jörg, 2003.
"A Vectorautoregressive Investment Model (VIM) and Monetary Policy Transmission: Panel Evidence from German Firms,"
Discussion Paper Series 1: Economic Studies
2003,06, Deutsche Bundesbank, Research Centre.
- Ulf von Kalckreuth, 2004. "A vectorautoregressive investment model (VIM) and monetary policy transmission: panel evidence from German firms," Money Macro and Finance (MMF) Research Group Conference 2003 107, Money Macro and Finance Research Group.
- von Kalckreuth, Ulf & Jorg Breitung & Robert S Chirinko, 2003. "A Vectorautoregressive Investment Model (VIM) and Monetary Policy Transmission: Panel Evidence from German Firms," Royal Economic Society Annual Conference 2003 213, Royal Economic Society.
- Joerg Breitung & Robert Chirinko & Ulf von Kalckreuth, 2003. "A Vectorautoregressive Investment Model (VIM) and Monetary Policy Transmission: Panel Evidence from German Firms," Emory Economics 0307, Department of Economics, Emory University (Atlanta).
- Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
- Tiff Macklem, 1997. "Capacity constraints, price adjustment, and monetary policy," Bank of Canada Review, Bank of Canada, vol. 1997(Spring), pages 39-56.
- von Kalckreuth, Ulf & Chirinko, Robert S., 2002.
"Further Evidence On The Relationship Between Firm Investment And Financial Status,"
Discussion Paper Series 1: Economic Studies
2002,28, Deutsche Bundesbank, Research Centre.
- Robert Chirinko & Ulf von Kalckreuth, 2003. "Further Evidence on the Relationship between Firm Investment and Financial Status," Emory Economics 0302, Department of Economics, Emory University (Atlanta).
- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
- James Mitchell & Richard J. Smith & Martin R. Weale, 2002. "Quantification of Qualitative Firm-Level Survey Data," Economic Journal, Royal Economic Society, vol. 112(478), pages C117-C135, March.
- Nobuhiro Kiyotaki & John Moore, 1997. "Credit Chains," ESE Discussion Papers 118, Edinburgh School of Economics, University of Edinburgh.
- Fumio Hayashi, 1981.
"Tobin's Marginal q and Average a : A Neoclassical Interpretation,"
457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
- George J. Stigler, 1967. "Imperfections in the Capital Market," Journal of Political Economy, University of Chicago Press, vol. 75, pages 287.
- Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
- Jean-Bernard Chatelain & Andrea Generale & Ignacio Hernando & Ulf von Kalckreuth & Philip Vermeulen, 2003. "New Findings on Firm Investment and Monetary Transmission in the Euro Area," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 73-83.
- Steven N. Kaplan & Luigi Zingales, 2000.
"Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints,"
The Quarterly Journal of Economics,
MIT Press, vol. 115(2), pages 707-712, May.
- Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints," NBER Working Papers 7659, National Bureau of Economic Research, Inc.
- Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
- Chatelain, Jean-Bernard & Generale, Andrea & Hernando, Ignacio & Von Kalckreuth, Ulf & Vermeulen, Philip, 2001.
"Firm investment and monetary transmission in the euro area,"
Working Paper Series
0112, European Central Bank.
- J. B. Chatelain & Andrea Generale & I. Hernando & U. von Kalckreuth & P. Vermeulen, 2001. "Firm investment and monetary transmission in the euro area," Temi di discussione (Economic working papers) 431, Bank of Italy, Economic Research and International Relations Area.
- Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988.
"Financing Constraints and Corporate Investment,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
- Robert S. Chirinko & Ulf von Kalckreuth, 2003.
"On the German Monetary Transmission Mechanism: Interest Rate and Credit Channels for Investment Spending,"
CESifo Working Paper Series
838, CESifo Group Munich.
- Robert Chirinko & Ulf von Kalckreuth, 2002. "On The German Monetary Transmission Mechanism: Interest Rate and Credit Channels for Investment Spending," Emory Economics 0212, Department of Economics, Emory University (Atlanta).
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Dr Martin Weale & Dr. James Mitchell, 2002. "Aggregate versus Disaggregate Survey-Based Indicators of Economic Activity (revised January 2005)," NIESR Discussion Papers 194, National Institute of Economic and Social Research.
- Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
- Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
- Demsetz, Harold, 1969. "Information and Efficiency: Another Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 12(1), pages 1-22, April.
- Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 63-132.
When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:260. 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: (Publications Team)
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.