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Firm Investment, Financial Constraints and Monetary Transmission: An Investigation with Czech Firm-Level Data

Oxana Babecká-Kucharčuková and Renata Pasalicova

Working Papers from Czech National Bank, Research Department

Abstract: This project investigates the effect of financial constraints and monetary policy on firms' investment behaviour using Czech firm-level data. The empirical specification is based on the dynamic neoclassical investment model, which explains investment by sales and cash flow. In addition, it includes financial constraints and other factors. We differentiate firms according to their size and type of economic activity. We find that indebtedness and availability of liquidity have significant effects on investment. In the post-crisis period firms obtained less additional credit due to greater riskiness and tended to accumulate more liquidity. Expectations about future GDP growth and business sentiment are positively related to investment. At the same time, we observe considerable heterogeneity of the results across sectors. The impact of the short-term real interest rate is highly significant for firms of all sizes and in all important sectors of the Czech economy, reflecting monetary policy effectiveness.

Keywords: Financial constraints; firms; indebtedness; investment; liquidity; monetary policy (search for similar items in EconPapers)
JEL-codes: D22 E5 E22 G3 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-mac, nep-mon, nep-sbm and nep-tra
Date: 2017-12
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2017/16

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