Agency Costs, Credit Constraints and Corporate Investment

Sten Hansen
Additional contact information
Sten Hansen: Uppsala University, Postal: Department of Economics, Box 513, 751 20 Uppsala, Sweden

No 79, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: The importance of credit market imperfections for investment behavior is analyzed using Swedish firm level data. Adjustment and agency costs are included in the neoclassical theory of optimal financial and investment decisions for firms. In order to model the possible occurrence of agency costs of debt, and credit constraints, the behavior of banks is reviewed in the light of the theory of imperfect information. The econometric results indicate that investments are a¤ected by both adjustment and agency costs, but not by credit constraints. Moreover, it is also shown that financial decisions are a¤ected by agency costs. Finally, there is evidence of credit constraints prior to financial deregulation, but not specifically for small or independent firms.

Keywords: Credit constraints; Debt externalities; Expected marginal tax rate; Investment; Monitoring costs (search for similar items in EconPapers)
JEL-codes: D92 G31 (search for similar items in EconPapers)
Pages: 47 pages
Date: 1999-04-01
New Economics Papers: this item is included in nep-ent and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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