 On the interaction of financial frictions and fixed capital adjustment costs: Evidence from a panel of German firmsJournal of Economic Dynamics and Control, 2008, vol. 32, issue 11, 3538-3559 Abstract: This paper analyzes the interaction of financial frictions and non-convex adjustment costs. Non-convex adjustment costs imply that firm-level investment is lumpy. Firms invest infrequently but each investment is large. This allows financial variables to influence investment along two margins. They can alter the size of the stock of capital a company wishes to hold in the long run or they can influence the frequency at which investment projects are undertaken. The empirical analysis of this paper reveals that finance has nearly no long-run influence on the stock of capital in a sample of German companies. By contrast, the influence of finance on investment decisions is substantial. Consequently, finance primarily affects investment frequencies and financial factors and fundamental capital productivity strongly interact in the determination of investment. Keywords: Investment; Imperfect; capital; markets; Non-convex; adjustment; costs; Non-linear; panel; cointegration (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:32:y:2008:i:11:p:3538-3559 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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