A first approximation of the firm-level relationship between profit margins and business investment in the Spanish economy

Sergio Puente and Maristela Mulino Ríos
Additional contact information
Maristela Mulino Ríos: Banco de España

Economic Bulletin, 2024, issue 2024/Q4, No 04

Abstract: Rationale Business investment and profit margins both declined in 2020, but have been recovering since. Statistical analysis of firm-level data can be used to estimate the relationship between these two variables in the Spanish economy in recent years. Takeaways •After a decline in 2020, profit margins in Spain have been rising. This increase has been concentrated among firms that had lower profit margins in 2019. Conversely, firms that had higher margins before the pandemic have, overall, seen profit margins follow a downward trajectory. •The relationship between profit margins and business investment, calculated drawing on granular firm-level data, takes the form of an inverted-U curve: it is positive for profit margins below a certain threshold, but turns negative above that threshold. •In the Spanish economy, most firms stand in the section of the curve where the profit margin-investment relationship is positive. Firms in the section where the relationship is negative tend to be smaller, younger and more productive.

Keywords: Profit margin; investment (search for similar items in EconPapers)
JEL-codes: E22 L11 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... es/be2404-art04e.pdf (application/pdf)

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:bde:journl:y:2024:i:04:n:04

DOI: 10.53479/38219

Access Statistics for this article

More articles in Economic Bulletin from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().