Credit vs. demand constraints: the determinants of US firm-level investment over the business cycles from 1977 to 2011

Christian Schoder

No 106-2013, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: The paper studies empirically how relative supply and demand conditions on the capital market affected US firm-level investment over the business cycles from 1977 to 2011. A dynamic econometric specification of capital accumulation including sales growth, Tobin's q, the cash flow-capital ratio and the cost of capital as covariates is fitted by a rolling window System GMM estimator using quarterly data on publicly traded US corporations in order to obtain time-varying coefficients. We find that the investment effects of the variables capturing the demand-side of the capital market, i.e. sales growth and Tobin's q, behave counter-cyclically, whereas this does not hold for the investment effects of supply-side variables such as cash flow or the cost of capital. Our results suggest that investment was typically driven by adverse demand rather than supply conditions on the capital market during the most severe recessions.

Keywords: investment; credit constraints; business cycles; panel estimation; System GMM (search for similar items in EconPapers)
JEL-codes: D22 E22 G32 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Journal Article: Credit vs. demand constraints: The determinants of US firm-level investment over the business cycles from 1977 to 2011 (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:imk:wpaper:106-2013

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