Extricate: Financial Pressure and Firm Behaviour in Spain

Andrew Benito () and Ignacio Hernando
Additional contact information
Andrew Benito: Banco de España

No 227, Working Papers from Banco de España

Abstract: This paper examines financial pressure facing Spanish companies. A number of stylised facts regarding the financial performance and financing decisions of Spanish firms are first presented for the period 1985-2000 using repeated annual cross-sections of around 5,000 manufacturing and retail firms. (i) In periods of general financial fragility, most notably during the recession of 1993, the experience of the most financially vulnerable companies is even more distressed than movements in aggregate or average figures would suggest (ii) the burden of borrowing costs has declined for most companies in the mid-/late-1990s, but particularly for those at the top of the distribution (iii) the cross-sectional distribution of indebtedness across firms has remained remarkably stable but (iv) this conceals significant variation in debt ratios for individual firms. Using panel data methods, the effects of financial pressure associated with servicing debt on a number of aspects of corporate behaviour are then examined, namely fixed investment, employment (both permanent and temporary), inventories and dividend policies. Our results quantify the responsiveness of each of these responses to financial pressure experienced by firms in Spain. Quantitatively large effects of financial pressure on investment and employment are estimated, although these work through more quickly in the case of fixed investment. The effects on employment are found to be larger and work through more quickly in the case of temporary than permanent employment. We also find significant effects on inventory investment and dividend payments confirming these additional mechanisms of adjustment by companies in Spain in resp onse to financial pressure.

Pages: 30 pages
Date: 2002-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/02/Fic/dt0227e.pdf First version, November 2002 (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:wpaper:0227

Access Statistics for this paper

More papers in Working Papers 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 ().