Investment equations and financial restrictions at firm level: the case of Uruguay

Julio de Brun, Nestor Gandelman and Eduardo Barbieri
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Julio de Brun: Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales. Departmento de Economía
Eduardo Barbieri: Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales. Departmento de Economía

No 11, Documentos de Investigación from Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales

Abstract: Three alternative specifications of an investment euqtion have been tested using panel data of Uruguayan firms: a traditional accelerator model of investment, an error-correction version of that accelerator model, which tries to capture the adjustment processo to the long-run relationship between capital and sales, and an Euler equation approach. These models of investment were used to test for the existence of financial constraints in the investment decision process. Our estimates confirm the existence of financial restrictions on investment decisions od Uruguayan firms in the period under consideration (all estimates correspond to 1997-2000). We explored the effect on firms' ability to finance investment of two firms' attribute: size and origin of capitals. Regarding to size, our results coincide with the intuition, the theory and the usual result in literatura that small firms face greater constraints to finance their desired levels of investment. We also explored whether foreign owned firms suffered less from financial restrictions than national firms. This could not be asserted. Lastly, our estimates suggest a general increase in the severity of financial restrictions following the 1999-2000 crisis. In particular smaller firms were affected the most.

Keywords: investment decisions; financial restriction; bank credit; investment acelerator; Uruguay. (search for similar items in EconPapers)
Pages: 37 pages
Date: 2001-11
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Working Paper: Investment Equations and Financial Restrictions at Firm Level: The Case of Uruguay (2002)
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