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Financial Investment Constraints. A Panel Threshold Application to German Firm Level Data

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  • Artur Tarassow

    (Universität Hamburg (University of Hamburg))

Abstract

This article tests the hypothesis that financial supply-side shifts help to explain the low-investment climate of private firms in Germany. The core contention is that a firm's financial position contributes to its access to external finance on credit markets. Special emphasis is put on small and medium-sized firms as these are assumed to face more restrictive access to external sources of funds. The application of a non-linear panel threshold model allows us to group firms endogenously according to their financial position. As potential threshold variables nine different balance sheet indicators are used. The results reveal a positive relationship between cash flows and fixed capital accumulation. Additional nonlinearity suggests that financially fragile firms rely more heavily on retained earnings. In contrast to frequent assumptions, firm size does not seem to be a relevant grouping variable in general with the only exception being micro firms for which the probability to fall into a financially constrained regime is higher compared to other companies.

Suggested Citation

  • Artur Tarassow, 2015. "Financial Investment Constraints. A Panel Threshold Application to German Firm Level Data," Macroeconomics and Finance Series 201405, University of Hamburg, Department of Socioeconomics.
    • Handle: RePEc:hep:macppr:201405
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    File URL: https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_5_2014R.pdf
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    References listed on IDEAS

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    1. Šagovac Mislav & Šikić Luka, 2016. "Estimation of the firm‘s balance sheet channel effects during the economic crisis: Case of Croatia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 2(2), pages 10-29, December.

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    More about this item

    Keywords

    Firm investment; Balance sheet; Financial frictions; Credit rationing; SME; Non-linear panel; Threshold model;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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