Working Paper: CEPR ID: DP1329
Authors: Julie Ann Elston
Abstract: This paper presents evidence supporting the theory that informational and incentive problems in capital markets affect firm investment. This hypothesis is tested by estimating investment equations for two groups of German manufacturing firms. The first group of firms are those with bank ownership, suggesting lower costs to banks of obtaining information and better access to capital for the firm. The second group contains independent firms, that are expected to face greater external financing costs and liquidity constraints. Findings support the hypothesis of greater investment sensitivity to liquidity constraints, as well as increased investment sensitivity over time, for the group of independent firms.
Keywords: investment; banks; liquidity; germany
JEL Codes: E22; E44; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank relationships (G21) | sensitivity to liquidity constraints (E41) |
| bank involvement (G21) | investment sensitivity (G11) |
| bank relationships (G21) | access to capital (O16) |
| bank relationships (G21) | information costs (D83) |
| bank relationships (G21) | firm investment behavior (D21) |
| liquidity constraints (E41) | firm investment behavior (D21) |