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...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| 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 |
| 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. |
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