The impact of financial variables on firms' real decisions: evidence from Spanish firm-level data

Ignacio Hernando and Carmen Martínez-Carrascal ()
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Carmen Martínez-Carrascal: Banco de España
Authors registered in the RePEc Author Service: Carmen Martinez Carrascal

No 319, Working Papers from Banco de España

Abstract: This paper analyses the impact of alternative measures of firms' financial health on their investment and employment decisions. The emphasis is on the analysis of disaggregated data on such financial indicators. For this purpose, itemised data from a sample of the non-financial firms reporting to the Banco de España Central Balance Sheet Data Office Annual Database for the period 1985-2001 is used. We find that corporate financial position –proxied by alternative indicators– affects business activity and that this impact is non-linear and becomes relatively more intense when financial pressure exceeds a certain threshold. We also construct, using different financial variables, composite indicators that summarize the non-linear impact that the financial position has on investment and employment. Our results suggest that the use of firm-level data is particularly relevant in episodes where the financial pressure on a significant number of firms reaches levels at which it has a pronounced influence on real activity. In these episodes, indicators based on aggregate data may not reliably reflect the system's financial soundness since they do not adequately reflect the vulnerability of the most fragile companies.

Keywords: financial conditions; fixed investment; employment (search for similar items in EconPapers)
JEL-codes: C33 E22 G32 J23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2003-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/03/Fic/dt0319e.pdf First version, December 2003 (application/pdf)

Related works:
Journal Article: The impact of financial variables on firms' real decisions: Evidence from Spanish firm-level data (2008)
Chapter: The impact of financial variables on firms’ real decisions: evidence from Spanish firm-level data (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0319

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