Investment and the WACC: new micro evidence for France
Clément Mazet-Sonilhac and
Jean-Stéphane Mésonnier ()
Working papers from Banque de France
We exploit a new dataset of consolidated balance sheets for some 1,850, mostly nonlisted, French corporate groups, in order to investigate the relationship between corporate investment and the cost of capital. Our empirical model is motivated by a standard Q-theory of investment and relates the rate of investment to a proxy for profits, the cost of capital and firm- and sector-level controls. We notably construct firm-level measures of the weighted average cost of capital (WACC) that account for industry-specific values of the cost of equity and reflect the actual capital structure of firms. We find a confirmation that a high WACC drags down investment: a one SD increase in the real WACC (+2 pp) is associated on average with a reduction by 0.65 pp in the investment rate. The effect is somewhat larger for manufacturing firms and when firms are highly leveraged or more dependent on external finance. We also investigate the impact of lower competition or higher uncertainty on business investment and do not find evidence in support of any role of these two factors in France in recent years.
Keywords: Business Investment; Cost of Capital; Uncertainty; Competition (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cfn, nep-eur and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... /documents/wp710.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:710
Access Statistics for this paper
More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().