Credit vs. demand constraints: The determinants of US firm-level investment over the business cycles from 1977 to 2011
Christian Schoder
The North American Journal of Economics and Finance, 2013, vol. 26, issue C, 1-27
Abstract:
The paper studies empirically how relative supply and demand conditions on the capital market affected US firm-level investment over the business cycles from 1977 to 2011. A dynamic econometric specification of capital accumulation including sales growth, Tobin's q, the cash flow-capital ratio and the cost of capital as covariates is fitted by a rolling window System GMM estimator using quarterly data on publicly traded US corporations in order to obtain time-varying coefficients. We find that the investment effects of the variables capturing the demand-side of the capital market, i.e. sales growth and Tobin's q, behave counter-cyclically, whereas this does not hold for the investment effects of supply-side variables such as cash flow or the cost of capital. Our results suggest that investment was typically driven by adverse demand rather than supply conditions on the capital market during the most severe recessions.
Keywords: Investment; Credit constraints; Business cycles; Panel estimation; System GMM (search for similar items in EconPapers)
JEL-codes: D22 E22 G32 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (16)
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Working Paper: Credit vs. demand constraints: the determinants of US firm-level investment over the business cycles from 1977 to 2011 (2013) 
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:26:y:2013:i:c:p:1-27
DOI: 10.1016/j.najef.2013.04.002
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