Sources of Funds for Business Investments: Non-financial Corporate Sector and Small and Medium-sized Enterprises (SMEs)

Daniel Detzer, Nina Dodig, Trevor Evans, Eckhard Hein, Hansjörg Herr and Franz Prante
Additional contact information
Daniel Detzer: Berlin School of Economics and Law
Trevor Evans: Berlin School of Economics and Law
Hansjörg Herr: Berlin School of Economics and Law

Chapter Chapter 10 in The German Financial System and the Financial and Economic Crisis, 2017, pp 155-173 from Springer

Abstract: Abstract The profitability of the non-financial business sector increased considerably from the early 1990s until the Great Recession, but investment in capital stock was weak. There seems to be some evidence that the ‘preference channel’ and the ‘internal means of finance channel’ constrained investment in capital stock under the conditions of financialisation and the increasing shareholder value orientation of management. Increasing received financial profits (interest and dividends) indicate an increasing orientation of the management of non-financial corporate business towards investment in financial assets, as compared to investment in capital stock (‘preference channel’). And increasing dividends paid out to shareholders indicate a decrease in internal means of finance available for fixed investment purposes (‘internal means of finance channel’). As in other countries, internal means of finance have been the most important source of investment finance for German corporations; the contributions of equity issues have historically been negligible and they have been negative since the mid 1990s, indicating share buybacks in this period. Bank credit, as well as corporate bond issues, have not been necessary for real investment finance but have been used for the acquisition of financial assets since the mid-1990s. SMEs and non-corporate firms also finance investment predominantly from internal sources. Periods of high investment are associated with increasing credit and increasing debt-capital ratios. The decline in credit to non-corporate firms since the financial and economic crisis has been mainly caused by a lack of demand for the output of these firms, and not by a lack of access to credit.

Keywords: Capital Stock; Financial Asset; Great Recession; Investment Finance; Equity Ratio (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:fimchp:978-3-319-56799-0_10

Ordering information: This item can be ordered from
http://www.springer.com/9783319567990

DOI: 10.1007/978-3-319-56799-0_10

Access Statistics for this chapter

More chapters in Financial and Monetary Policy Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().