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Dynamics of investment behaviour in Finland: aggregate and firm level evidence

In this paper we estimate reduced form investment equations for Finland using aggregate as well as firm-level panel data. We obtain significant estimates of the accelerator and user-cost effects on investment with both aggregate and firm level data, but these effects appear to be stronger at the aggregate level. Although the response of firms’ investment spending to shifts in monetary policy seems to be quantitatively nontrivial, it is surprisingly weak according to the results with firm-level data, and a considerable amount of heterogeneity also exists across firms in this respect. The firm-level estimates do not provide evidence for the existence of binding financing constraints in firms’ investment spending, at least among the sampled large firms, as we cannot obtain a significant coefficient estimate on the cash flow variable.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0222.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 22/2002.

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Length: 35 pages
Date of creation: 17 Sep 2002
Date of revision:
Handle: RePEc:hhs:bofrdp:2002_022
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  2. Saarenheimo, Tuomas, 1995. "Credit Crunch Caused Investment Slump? An Empirical Analysis Using Finnish Data," Research Discussion Papers 6/1995, Bank of Finland.
  3. 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.
  4. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
  5. Andrew B. Abel & Olivier J. Blanchard, 1983. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc.
  6. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
  7. Hayashi, Fumio, 1985. "Corporate finance side of the Q theory of investment," Journal of Public Economics, Elsevier, vol. 27(3), pages 261-280, August.
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