IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Balance Sheet Restructuring and Investment

  • Karen Mills

    (Reserve Bank of Australia)

  • Steve Morling

    (Reserve Bank of Australia)

  • Warren Tease

    (Reserve Bank of Australia)

Registered author(s):

    This paper looks at the evolution of corporate balance sheets and investment over the past few years. (Lowe and Shuetrim (1992) also provide information on the evolution of corporate gearing in the 1980s. This paper focuses on the more recent experience of balance sheet restructuring and investment.) We find that many companies have significantly improved their balance sheets in this time. Leverage has been reduced, and this, coupled with lower nominal interest rates, has improved the interest cover and cash flows of the corporate sector. For many firms, the process of balance sheet repair has proceeded a long way so that the extent to which the financial position of firms will impinge on investment is much lower than it was a few years ago. However, in the short term, some focus on financial restructuring may remain given the extent of excess capacity in the economy and a shift in incentives away from debt financing. Looking further ahead, it appears that the rate of return to investing in capital is relatively high, at least when judged against the standards of earlier downturns. As the recovery picks up pace we should, therefore, see firms more inclined to expand their capital expenditure and less focused on financial restructuring.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.rba.gov.au/publications/rdp/1993/pdf/rdp9308.pdf
    Download Restriction: no

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9308.

    as
    in new window

    Length:
    Date of creation: Jun 1993
    Date of revision:
    Handle: RePEc:rba:rbardp:rdp9308
    Contact details of provider: Postal: GPO Box 3947, Sydney NSW 2001
    Phone: 61-2-9551-8111
    Fax: 61-2-9551-8000
    Web page: http://www.rba.gov.au/
    Email:


    More information through EDIRC

    Order Information: Web: http://www.rba.gov.au/forms/rdp-order-form/

    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.:

    as in new window
    1. Majd, Saman & Pindyck, Robert S., 1987. "Time to build, option value, and investment decisions," Journal of Financial Economics, Elsevier, vol. 18(1), pages 7-27, March.
    2. Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 559-88, August.
    3. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1990. "Speculative Dynamics," NBER Working Papers 3242, National Bureau of Economic Research, Inc.
    4. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
    5. Philip Lowe & Geoffrey Shuetrim, 1992. "The Evolution of Corporate Financial Structure: 1973–1990," RBA Research Discussion Papers rdp9216, Reserve Bank of Australia.
    6. Ben Bernanke & Mark Gertler, 1986. "Agency costs, collateral, and business fluctuations," Proceedings, Federal Reserve Bank of San Francisco.
    7. Whited, Toni M., 1991. "Investment and financial asset accumulation," Journal of Financial Intermediation, Elsevier, vol. 1(4), pages 307-334, December.
    8. Robert S. Pindyck, 1986. "Irreversible Investment, Capacity Choice, and the Value of the Firm," NBER Working Papers 1980, National Bureau of Economic Research, Inc.
    9. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
    10. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May.
    11. Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
    12. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    13. Kohu, Ulrich & Ryan, Christopher J., 1987. "Investment and interest rates: An econometric dissection," Journal of Macroeconomics, Elsevier, vol. 9(3), pages 373-389.
    14. Amihud, Yakov & Lev, Baruch & Travlos, Nickolaos G, 1990. " Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions," Journal of Finance, American Finance Association, vol. 45(2), pages 603-16, June.
    15. Michael Devereux & Fabio Schiantarelli, 1990. "Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 279-306 National Bureau of Economic Research, Inc.
    16. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    17. Ben Bernanke & Mark Gertler, 1987. "Financial Fragility and Economic Performance," NBER Working Papers 2318, National Bureau of Economic Research, Inc.
    18. Fazzari, Steven M & Athey, Michael J, 1987. "Asymmetric Information, Financing Constraints, and Investment," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 481-87, August.
    19. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    20. D. E. Allen, 1991. "The Determinants of the Capital Structure of Listed Australian Companies: The Financial Manager's Perspective," Australian Journal of Management, Australian School of Business, vol. 16(2), pages 103-128, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:rba:rbardp:rdp9308. 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: (Paula Drew)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.