Arbeitspapier
The effect of financial development on the investment cash flow relationship: cross-country evidence from Europe
We investigate financing constraints in a large cross-country data set covering most of the European economy. Firm level investment sensitivity to cash flow is used to identify financing constraints. We find that the sensitivities are significantly positive on average, controlling for country and industry fixed effects, as well as firm level controls. Most importantly, the cash flow sensitivity of investment is lower in countries with better-developed financial markets. This suggests that financial development may mitigate financial constraints. This effect is weaker in conglomerate subsidiaries, which are likely to have access to internal capital markets and depend less on the outside financial environment, and possibly for firms in industries with highly liquid assets as well. This result sheds light on the link between financial and economic development.
- Language
-
Englisch
- Bibliographic citation
-
Series: ECB Working Paper ; No. 689
Financial Markets and the Macroeconomy
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Market Structure, Firm Strategy, and Market Performance: General
financial constraints
Financial Development
Investment
Unternehmensfinanzierung
Cash Flow
Investitionsentscheidung
EU-Staaten
Europa
Sivadasan, Jagadeesh
- Handle
- Last update
-
20.09.2024, 8:22 AM CEST
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Becker, Bo
- Sivadasan, Jagadeesh
- European Central Bank (ECB)
Time of origin
- 2006