Description: Financial Development and Dynamic Investment Behavior : Evidence from Panel Vector Autoregression

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Financial Development and Dynamic Investment Behavior : Evidence from Panel Vector Autoregression

The authors apply vector autoregression to firm-level panel data from 36 countries to study the dynamic relationship between firms' financial conditions and investment. They argue that by using orthogonalized impulse-response functions they ar...

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Bibliographic Details
Main Authors:	Love, Inessa, Zicchino, Lea
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ACCOUNTING ADVERSE SELECTION ASYMMETRIC INFORMATION AUTOREGRESSION BALANCE SHEETS BUSINESS CYCLES CAPITAL ALLOCATION CAPITAL MARKETS CD CREDIT MARKETS DEBT DIMINISHING RETURNS ECONOMETRIC MODELS ECONOMETRICS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC STATISTICS ECONOMICS ECONOMISTS EXTERNAL FINANCING FINANCIAL FACTORS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY DEVELOPMENT FINANCIAL INTERMEDIATION FINANCIAL MARKETS FIXED ASSETS GDP HUMAN CAPITAL INNOVATIONS LESS DEVELOPED COUNTRIES LIQUIDITY M3 MARGINAL PRODUCT MARGINAL PRODUCTIVITY MORAL HAZARD NET WORTH NPV POLITICAL ECONOMY PRESENT VALUE PROFITABILITY PROGRAMS REAL INTEREST RATE STOCK MARKETS TIME SERIES FINANCIAL DEVELOPMENT INVESTMENT BEHAVIOR VECTOR AUTOREGRESSION FINANCIAL SYSTEMS COLLATERAL DECISION MAKING ALLOCATION OF RESOURCES CASH FLOW TIME SERIES FINANCIAL DEVELOPMENT
Online Access:	http://documents.worldbank.org/curated/en/2002/10/2040839/financial-development-dynamic-investment-behavior-evidence-panel-vector-autoregression http://hdl.handle.net/10986/19216

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Summary:	The authors apply vector autoregression to firm-level panel data from 36 countries to study the dynamic relationship between firms' financial conditions and investment. They argue that by using orthogonalized impulse-response functions they are able to separate the "fundamental factors" (such as marginal profitability of investment) from the "financial factors" (such as availability of internal finance) that influence the level of investment. The authors find that the impact of the financial factors on investment, which they interpret as evidence of financing constraints, is significantly larger in countries with less developed financial systems. The finding emphasizes the role of financial development in improving capital allocation and growth.