Carmen Martínez-Carrascal and Annalisa Ferrando
THE IMPACT OF FINANCIAL POSITION
ON INVESTMENT: AN ANALYSIS FOR
NON-FINANCIAL CORPORATIONS
IN THE EURO AREA
2008
Documentos de Trabajo
N.º 0820
THE IMPACT OF FINANCIAL POSITION ON INVESTMENT: AN ANALYSIS FOR NON-FINANCIAL CORPORATIONS IN THE EURO AREA
THE IMPACT OF FINANCIAL POSITION ON INVESTMENT:
AN ANALYSIS FOR NON-FINANCIAL CORPORATIONS
IN THE EURO AREA
(*)Carmen Martínez-Carrascal
(**)BANCO DE ESPAÑA
Annalisa Ferrando
(***)EUROPEAN CENTRAL BANK
Documentos de Trabajo. N.º 0820
(*) Acknowledgements: This paper was to a large extent conducted while Carmen Martínez-Carrascal was wor-king at the ECB. It has benefited from discussions with I. Hernando, M. C. Sánchez Carretero and P. Vermeulen and comments from an anonymous referee, from M. Andersson, C. Barceló, F. Drudi and the participants at the Workshop on Corporate Balance Sheet Data held at the ECB, at the XI Encuentro de Economía Aplicada and in an internal seminar in the Capital Markets and Financial Structure Division at the ECB. We also want to thank A. Dalamangas and S. Scopel for their help with the data. The views expressed are those of the authors and should not be attributed to the Banco de España or to the European Central Bank.
(**) Corresponding author. Servicio de Estudios, Banco de España. Alcalá, 50, 28014 Madrid, Spain. E-mail:
(***) Directorate Monetary Policy, European Central Bank, Kaiserstrasse 29, 30611, Frankfurt am Main, Germany. E-mail: [email protected].
The Working Paper Series seeks to disseminate original research in economics and fi nance. All papers have been anonymously refereed. By publishing these papers, the Banco de España aims to contribute to economic analysis and, in particular, to knowledge of the Spanish economy and its international environment.
The opinions and analyses in the Working Paper Series are the responsibility of the authors and, therefore, do not necessarily coincide with those of the Banco de España or the Eurosystem.
The Banco de España disseminates its main reports and most of its publications via the INTERNET at the following website: http://www.bde.es.
Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged.
© BANCO DE ESPAÑA, Madrid, 2008 ISSN: 0213-2710 (print)
Abstract
This paper analyses the impact that fi rms’ fi nancial position has on investment decisions using panel data from a large sample of non-fi nancial corporations (around 120,000 fi rms) in six euro area countries (Belgium, Germany, France, Italy, the Netherlands and Spain). The results indicate that fi nancial position is important to explain capital expenditures, as fi nan-cial pressure appears relevant in explaining investment dynamics when it is proxied by cash
fl ow, indebtedness and debt burden. The results also show differences in the sensitivity of investment rates to changes in fi nancial pressure across countries, which appears to be especially large in the Netherlands and Italy and relatively small in Germany.
Keywords: fi nancial pressure, fi xed investment, balance sheet channel, panel data.
Non-technical summary
Financial frictions can amplify the impact of changes in interest rates on economic
ac-tivity. Accordingly, understanding the way in which nancial conditions aect rms’ demand
of productive factors becomes relevant for an optimal design of monetary policy. In addition,
in the context of the euro area, the knowledge of potential dierences in the investment rate
sensitivity to changes in rms’ nancial position across countries or across dierent types of
rms is crucial for a better understanding of the impact of a single monetary policy.
This paper investigates the sensitivity of investment rates to changes inrms’nancial
position, using a large sample of non-nancial corporations in six major euro area countries
(Belgium, Germany, France, Italy, the Netherlands and Spain). We proxy nancial pressure
using three nancial ratios: protability, net indebtedness and the interest rate burden. The
expected relationship between therstnancial ratio and investment activity is positive:
nanc-ing constraints resultnanc-ing from asymmetric information problems imply thatrms tend to invest
more when they have more internal resources available. As for the indebtedness ratio, although
debt may have some desirable properties (it allowsnancing projects in the absence of internal
resources), the commitment to repay the debt may have a negative in uence onrms’ spending
decisions (it might make it more di!cult for rms to access additional credit to nance new
investment projects). The third ratio measuresrms’ capacity to meet interest payments with
their earnings, and is also expected to present a negative relationship with investment rates.
The results show thatrms’nancial position is important to explain their capital
ex-penditures since the threenancial ratios considered are found to be signicant when included in
an investment equation: indebtedness and debt burden are found to exert a negative impact on
investment, while cash ow is positively linked to it. Wend a certain degree of heterogeneity
across countries in the magnitude of this impact: rms in the Netherlands and Italy are found
to be the ones with the highest marginal impact ofnancial pressure on investment rates, while
the lowest has been found for Germanrms.
In the paper we also give an insight on how, by altering thenancial pressure experienced
byrms in servicing their debt, monetary policy may operate through the corporate sector. A
simple exercise quanties how much investment rates change across countries, ceteris paribus,
due to an increase in the cost of debtnancing. Overall, taking into consideration our estimates
on the sensitivity of investment to changes in the debt burden and the levels of this ratio in each
1
Introduction
The analysis of thenancial position of non-nancial corporations and their responses to
nan-cial pressure are important elements in any assessment of the macroeconomic outlook, asrms’
nancial situation can conditionrms’ real decisions. For example, excessive indebtedness or a
high debt-service burden can have an adverse eect on investment spending, thereby
contribut-ing to deepen recessions or to delay or dampen upturns. Accordcontribut-ingly, understandcontribut-ing the way
in which nancial conditions aect rms’ demand of productive factors -and more specically
investment, which represents 20% of euro area GDP- becomes relevant for an optimal design of
monetary policy. In addition, in the context of the euro area, the knowledge of potential di
er-ences in the investment rate sensitivity to changes in rms’ nancial position across countries
or across dierent types of rms is crucial for a better understanding of the impact of a single
monetary policy.
As has been widely emphasized in the literature, credit market imperfections such as asymmetric information problems result in a wedge between the cost of funds raised externally (by issuing equity or debt) and funds generated internally (retained earnings). This wedge (the
externalnance premium) will depend on the borrowernancial position (for example, it can
depend on the level of net wealth that can be provided as collateral), resulting inrmnancial
situation being relevant in determining its investment decisions. As the balance sheet channel
literature emphasizes, the existence of this external nance premium implies that monetary
policy will be transmitted to rms not only through the traditional interest rate channel, but
also through the impact it has on this premium: higher interest rates increase debt servicing
payments, erode cash ow and reduce collateral values, something that increases the external
nance premium and squeezesrm demand for loans (thenancial accelerator mechanism).
From the seminal paper by Fazzariet al. (1988), most of the discussion on the impact of
credit market imperfections on corporate investment has relied on the analysis of the response
of capital expenditures to cash ow. The basic working hypothesis behind this strand of the
nancing constraints literature is that this response should be higher rms that face a larger
wedge between the cost of internal and external funds. However, much less work has been done
on the analysis that variables such as indebtedness or debt burden have on rms’ spending
decisions.
This paper analyses howrms’ nancial position aects their investment decisions. It
makes two contributions to the existing literature on this area. First, dierently from most
focus on investment sensitivity to cash ow ratios but also on the impact of changes in debt burden and indebtedness on capital expenditures. Second, our analysis is based on a large panel
dataset with a high percentage of small and medium sizedrms (over 85% in four out of the
six countries considered -Belgium, France, Germany, Italy, the Netherlands and Spain, which
broadly represent 90% of euro area GDP-), which are in fact those thought to be more aected
by asymmetric information problems and hence are likely to face a higher external nance
premium. In contrast, much of the existing empirical work has been based on datasets with a
high proportion of large rms, which are likely to suer less from informational asymmetries
and have a better access to capital markets.
Looking at the results, we conclude thatrms’nancial position is important to explain
their capital expenditures: indebtedness and debt burden are found to exert a negative impact
on investment, while cash ow is positively linked to it. Wend a certain degree of heterogeneity
across countries in the magnitude of this impact: rms in the Netherlands and Italy are found
to be the ones with the highest marginal impact ofnancial pressure on investment rates, while
the lowest has been found for Germanrms.
The rest of the paper is structured as follows. Section 2 reviews the existing literature on
the link betweenrms’ investment decisions andnancial factors. Section 3 describes the data
used. Section 4 provides a descriptive analysis on the relationship between investment rates
and rms’ nancial position. Section 5 presents the model and the estimation method, and
the results are shown in Section 6. The potential reasons behind the dierences in the results
across countries are presented in Section 7. Finally, Section 8 summarises the main results and concludes.
2
Review of the literature
In the past years, a large body of the literature has provided robust empirical evidence that
nancial factors have a signicant impact on rms’ investment decisions. While traditional
research on investment was based on the neoclassical theory of optimal capital accumulation
(where, under the assumption of perfect capital markets, the cost ofnancing does not depend
on the rm’ nancial position), more recent literature has increasingly incorporated frictions
such as asymmetric information and agency problems as a source behind the relevance of the
degree of nancial pressure faced by the rm in determining the availability and the costs of
67B7@6E A@ F:7 MD?O 43>3@57 E:77F EFDG5FGD7 I:;5: I;>> 67F7D?;@7 ;FE 5D76;FIADF:;@7EE :;9:7D 674F E7DH;5;@9 B3K?7@FE :;9:7D >7H7D397 AD >AI7D 53E: NAI I;>> :3H7 3 @793F;H7 ;?B35F A@ F:7 MD?O 5D76;FIADF:;@7EE 3@6 :7@57 3>> 7>E7 47;@9 7CG3> I;>> ;@5D73E7 F:7 7JF7D@3> M@3@57 BD7?;G? 3@6 D76G57 F:7 67?3@6 8AD 7JF7D@3> M@3@5;@9
+F3DF;@9 I;F: F:7 E7?;@3> IAD= 4K 3LL3D; ?3@K 7?B;D;53> EFG6;7E F7EF76 F:7
:KBAF:7E;E F:3F ;8 7JF7D@3> M@3@5;@9 ;E 3H3;>34>7 I;F:AGF 8D;5F;A@E 3 MD?OE ;@H7EF?7@F E:AG>6 47 67F7D?;@76 4K ;FE ;@H7EF?7@F ABBADFG@;F;7E GEG3>>K BDAJ;76 4K ,A4;@OE ) 3@6 @AF 4K ;FE ;@F7D@3> D7EAGD57E 53BFGD76 4K 3 MD?OE 53E: NAI ,:7 :;9:7D E7@E;F;H;FK A8 ;@H7EF?7@F AD MD?EO 9DAIF: FA ;@F7D@3> EAGD57E I3E F3=7@ 3E 7H;67@57 8AD F:7 BD7E7@57 A8 M@3@5;@9 5A@EFD3;@FE E77 3>EA 3LL3D;
3@6 3DB7@F7D 3@6 (7F7DE7@ AI7H7D 38F7D F:7 D7EG>FE BD7E7@F76 4K #3B>3@
3@6 2;@93>7E 3@6 E7H7D3> EFG6;7E :3H7 5D;F;5;E76 F:7 7?B;D;53> F7EF 43E76 A@ F:7 53E: NAI E7@E;F;H;FK 3E 3 ?73@;@98G> 7H;67@57 ;@ 83HAGD A8 F:7 7J;EF7@57 A8 M@3@5;@9 5A@EFD3;@FE ,:7 E;9@;M53@57 A8 F:7 53E: NAI E7@E;F;H;FK A8 ;@H7EF?7@F ;F I3E 3D9G76 ?3K F:7@ 47 F:7 5A@E7CG7@57 A8 ?73EGD7?7@F 7DDADE ;@ F:7 GEG3> BDAJK 8AD ;@H7EF?7@F ABBADFG@;F;7E ,A4;@OE ) 3@6 ?3K BDAH;67 366;F;A@3> ;@8AD?3F;A@ A@ 7JB75F76 BDAMF34;>;FK D3F:7D F:3@ 47;@9 3 E;9@3> A8 M@3@5;@9 5A@EFD3;@FE AD 7J3?B>7 A?7E E:AIE F:3F F:7 7J;EF7@57 A8 M@3@5;@9 5A@EFD3;@FE ;E @AF EGS5;7@F FA 7EF34>;E: 53E: NAI 3E 3 E;9@;M53@F D79D7EEAD ;@ 3 EF3@63D6 ;@H7EF?7@F 7CG3F;A@ I:;>7 D;5EA@ 3@6 /:;F76 67?A@EFD3F7 F:3F F:7 ;@H7EF?7@F E7@E;F;H;FK FA 53E: NAI ;@ D79D7EE;A@E ;@5>G6;@9 ,A4;@O E ) ;E FA 3 >3D97 7JF7@F 6G7 FA 3 ?73EGD7?7@F 7DDAD ;@ ) $;=7I;E7 >F; E:AIE F:3F ;@H7EF?7@F 53@ 47 E7@E;F;H7 FA 5:3@97E ;@ 53E: NAI ;@ F:7 47@5:?3D=
53E7 I:7D7 M@3@5;@9 ;E 8D;5F;A@>7EE !@ F:;E D7EB75F A@6 ;@6;53F7 F:3F ;8 F:7 DA>7 A8
53E: NAI 3E BDAJK A8 8GFGD7 BDAMF34;>;FK ;E E;?;>3D 35DAEE 5AG@FD;7E ;@F7DBD7F;@9 :;9:7D 53E: NAI E7@E;F;H;F;7E ;@ 3 5AG@FDK 3E 3@ 7T75F A8 M@3@5;@9 5A@EFD3;@FE ;E >7EE 3?4;9GAGE 3@6 6;T7D7@57E ;@ F:7 7EF;?3F76 5A7S5;7@FE A8 F:7 53E: NAI H3D;34>7 35DAEE 5AG@FD;7E 3D7 ?AD7 >;=7>K FA D7N75F 6;T7D7@57E ;@ M@3@5;@9 5A@EFD3;@FE
!@ F:;E 3DF;5>7 I7 I;>> 8A5GE @AF A@>K A@ F:7 >;@= 47FI77@ ;@H7EF?7@F 3@6 53E: NAI 4GF 3>EA A@ AF:7D 43>3@57 E:77F ;@6;53FADE @3?7>K F:7 >7H7D397 >7H7> 3@6 F:7 674FE7DH;5;@9 B3K?7@FE FA 3@3>KL7 F:7 ;?B35F A8 M@3@5;3> 835FADE A@ MD?EO ;@H7EF?7@F 675;E;A@E A8 MD?E !@ F:;E D7EB75F ;@ F:7 E7?;@3> B3B7D %7K7DE 3@3>KE7E BAEE;4>7 7JF7D@3>;F;7E 97@7D3F76 4K 674F A@ E:3D7:A>67DEO 3@6 ?3@397?7@F ABF;?3> ;@H7EF?7@F EFD3F79K %AD7 97@7D3>>K 674F AH7D:3@9 ?A67>E 7JB>3;@ FIA 6;EF;@5F EADFE A8 ;?B>;53F;A@E 7J BAEF A@57 F:7 674F 4GD67@ ;E ;@ B>357 F:7K EG997EF F:3F :;9:>K >7H7D3976 MD?E I;>> 47 B3DF;5G>3D>K 6;E5AGD3976 FA ;@H7EF 8GDF:7D 7EB75;3>>K ;8 @7I ;@H7EF?7@F ;E M@3@576 4K ;EEG;@9 5>3;?E F:3F 3D7 <G@;AD FA F:7 7J;EF;@9 674F J 3@F7 F:7K 7JB>3;@ I:K 7H7@ >AI>7H7D3976 MD?E ?3K 47 D7>G5F3@F FA D3;E7 ?G5: 674F
7H7@ ;8 F:;E ?73@E 8AD79A;@9 EA?7 5GDD7@F ;@H7EF?7@F BDA<75FE
,:7 7?B;D;53> 7H;67@57 A@ F:7 ;?B35F A8 >7H7D397 A@ ;@H7EF?7@F ;E >7EE 7JF7@E;H7 F:3@ F:3F 8A5GE;@9 A@ F:7 E7@E;F;H;FK A8 ;@H7EF?7@F FA 53E: NAI H3D;3F;A@E !@ A@6 3@6 %79:;D F:7 7JF7D@3> M@3@5;@9 5AEF ;E E:AI@ FA 47 67B7@67@F A@ F:7 >7H7> A8 ;@674F76@7EE 4K 53B;F3> G@;F !@ F:7 E3?7 >;@7 EFD363 3@6 .3>>VE F7EF 8AD 3 E3?B>7 A8 +B3@;E: 5A?B3@;7E 3 ?A67> F:3F
5A@E;67DE F:7 >7H7> A8 @7F ;@674F76@7EE 3E 3 67F7D?;@3@F A8 F:7 7JF7D@3> M@3@5;@9 5AEF $3@9
3@6 ;H3L;3@ GE;@9 -+ 3@6 3@36;3@ 63F3 D7EB75F;H7>K E:AI F:3F >7H7D397
;E @793F;H7>K D7>3F76 FA ;@H7EF?7@F 3@6 F:3F F:;E @793F;H7 7T75F ;E E;9@;M53@F>K EFDA@97D 8AD MD?E I;F: >AI 9DAIF: ABBADFG@;F;7E F:3@ F:AE7 I;F: :;9: 9DAIF: ABBADFG@;F;7E $;=7I;E7 /:;F76 M@6E F:3F MD?E I;F: :;9:7D >7H7D397 3@6 :;9:7D D3F;A A8 ;@F7D7EF 7JB7@E7E FA 53E: NAI F:3F E:AG>6 F:7D78AD7 47 ?AD7 M@3@5;3>>K 5A@EFD3;@76 F:3@ F:7 AF:7DE :3H7 3 :;9:7D ;@H7EF?7@F 53E: NAI E7@E;F;H;FK !@ F:7 E3?7 >;@7 D7EG>FE ;@ 7@;FA 3@6 7D@3@6A 3@6 7D@3@6A 3@6 %3DF;@7L3DD3E53> ;@6;53F7 F:3F F:7 ;?B35F A8 ;@674F76@7EE 3@6 674F 4GD67@ A@ ;@H7EF?7@F ;E @A@>;@73D 3@6 475A?7E D7>3F;H7>K ?AD7 ;@F7@E7 I:7@ M@3@5;3> BD7EEGD7 7J5776E 3 57DF3;@ F:D7E:A>6 AD F:7 -# %3D5:;53 3@6 %GD3 ;@H7EF;93F7 7JB>;5;F>K F:7 ;?B35F A8 3 6;EF;@5F >7H7D397 BA>;5K A@ F:7 ;@H7EF?7@F 34;>;FK A8 MD?E 3@6 M@6 F:3F F:7 I3K F:7 >7H7> A8 7JF7D@3> 674F ;@NG7@57E 3 5A?B3@KOE 34;>;FK FA ;@H7EF ?3K 6;T7D 67B7@6;@9 A@ I:7F:7D F:7 5A?B3@K ;E 47>AI AD 34AH7 ;FE F3D97F >7H7D397
'GD B3B7D ;E 5>AE7>K D7>3F76 FA F:7 IAD= A8 7@;FA 3@6 7D@3@6A 3@6 7D@3@6A 3@6 %3DF;@7L3DD3E53> I:;5: 3@3>KE7 F:7 ;?B35F A8 3>F7D@3F;H7 ?73EGD7E A8 M@3@5;3> BD7EEGD7 A@ F:7 ;@H7EF?7@F 3@6 7?B>AK?7@F 675;E;A@E A8 +B3@;E: MD?E /7 8A>>AI F:7;D 5:A;57 A8 M@3@5;3> ;@6;53FADE FA BDAJK MD?EO M@3@5;3> BD7EEGD7 3@6 3@3>KE7 F:7;D ;?B35F A@ ;@H7EF?7@F 675;E;A@E 8AD 3 E7F A8 MD?E AB7D3F;@9 ;@ E;J 7GDA 3D73 5AG@FD;7E 3E ;F I;>> 47 7JB>3;@76 F:7 8A>>AI;@9 E75F;A@
' " &!$ #)%)*
,:7 EAGD57 A8 F:7 5A?B3@K 63F343E7 GE76 ;@ F:;E EFG6K ;E %-+ A8 F:7 GD73G H3@ ;<= 5A@F3;@;@9 BDAMF 3@6 >AEE 355AG@F 3@6 43>3@57 E:77F 63F3 A@ BD;H3F7 3@6 BG4>;5>K AI@76 MD?E 35DAEE 7>7H7@ 7GDA 3D73 5AG@FD;7E ;@ F:7 B7D;A6 AD F:7 BGDBAE7 A8 F:7 3@3>KE;E I7 5A@E;67D76 7GDA 3D73 BD;H3F7 >;EF76 3@6 G@>;EF76 @A@M@3@5;3> 7@F7DBD;E7E /7 7J5>G676 F:7 MDEF F:D77 K73DE 4753GE7 A8 F:7 BAAD 5AH7D397 35DAEE 5AG@FD;7E 3@6 >AE7 EA?7 366;F;A@3> K73DE 8AD F:7 5A@EFDG5F;A@ A8 F:7 H3D;34>7E 8AD F:7 75A@A?7FD;5 3@3>KE;E /7 7J5>G67 MD?E I;F: ;@H7EF?7@F
D3F7E >3D97D F:3@ 3E F:;E ;E BDA434>K 3 E;9@ A8 ?7D97D AD 35CG;E;F;A@ 3@6 F:AE7 8AD I:;5: F:7D7 3D7 >7EE F:3@ E;J 5A@E75GF;H7 K73DE A8 ;@8AD?3F;A@ A@ F:7 H3D;34>7E A8 ;@F7D7EF ,:7 E;L7 A8 AGD M@3> E3?B>7 ;E 3DAG@6 MD?E I;F: 34AGF A4E7DH3F;A@E !F BD76A?;@3@F>K 5A@E;EFE A8 G@CGAF76 MD?E I;F: A@>K A4E7DH3F;A@E A8 CGAF76 MD?E ,:7 5AG@FD;7E 5AH7D76 ;@ AGD 3@3>KE;E 3D7 7>9;G? 7D?3@K D3@57 !F3>K F:7 &7F:7D>3@6E 3@6 +B3;@ /:7@7H7D 3H3;>34>7 I7 GE7 F:7 5A@EA>;63F76 3@@G3> 355AG@FE 3E F:7E7 3D7 5A@E;67D76 FA 47 ?AEF EG;F34>7 8AD BDAH;6;@9 ;@8AD?3F;A@ 34AGF F:7 M@3@5;3> E;FG3F;A@ A8 3 5A?B3@K I;F: EG4E;6;3D;7E /:7@ 5A@EA>;63F76 63F3 3D7 @AF 3H3;>34>7 G@5A@EA>;63F76 63F3 3D7 GE76 %AD7AH7D E;@57 ?3@K E?3>>3@6 ?76;G? E;L76 +%E @A@M@3@5;3> MD?E BDAH;67 A@>K G@5A@EA>;63F76 355AG@FE I7 3D7 34>7 FA ;@5>G67
;@ AGD E3?B>7 3 >3D97 @G?47D A8 +%E I:;5: IAG>6 :3H7 477@ 7J5>G676 AF:7DI;E7
,34>7 BD7E7@FE EA?7 43E;5 873FGD7E A8 F:7 63F3E7F 35DAEE 5AG@FD;7E +F3DF;@9 8DA? F:7 >AI7D B3@7> A8 F:7 F34>7 F:7 E3?B>7 5AG>6 47 73E;>K 6;H;676 ;@FA FIA 6;T7D7@F 9DAGBE A8 5AG@FD;7E ,:7 MDEF 9DAGB 7>9;G? D3@57 !F3>K 3@6 +B3;@ ;E 5:3D35F7D;E76 4K H7DK :;9: BDABADF;A@E A8 +%E 34AH7 ;@ 3>> 5AG@FD;7E 7J57BF 8AD 7>9;G? 3@6 H7DK >AI BDABADF;A@E A8 >;EF76 5A?B3@;7E 3DAG@6 AD 47>AI ;@ >;@7 I;F: F:7 E;L7 6;EFD;4GF;A@ ;@ F:7 35FG3> BABG>3F;A@ AD F:7 E75A@6 9DAGB 7D?3@K 3@6 F:7 &7F:7D>3@6E F:7 E3?B>7E E:AI >AI7D B7D57@F397E A8 +%E 3DAG@6 3@6 :;9:7D E:3D7E A8 >;EF76 5A?B3@;7E 3@6 D7EB75F;H7>K ,:7 :;9: E:3D7 A8 +%E ;@ F:7 E3?B>7E GE76 7EB75;3>>K 8AD F:7 MDEF A@7 A8 F:7E7 FIA 9DAGBE A8 5AG@FD;7E D7BD7E7@FE 3 5>73D 6;T7D7@57 I;F: D7EB75F I;F: ?AEF BD7H;AGE EFG6;7E I:;5: :3H7 GE76 63F343E7 5A@F3;@;@9 ?3;@>K >3D97 5A?B3@;7E 3@6 :;9:7D BDABADF;A@E A8 CGAF76 MD?E E 8AD F:7 E75FAD3> 5A?BAE;F;A@ F:7 ?3<AD;FK A8 MD?E 3D7 ;@ F:7 ?3@G835FGD;@9 3@6 FD367 E75FADE ;@ 7>9;G? !F3>K +B3;@ 3@6 F:7 &7F:7D>3@6E I:;>7 87I7D 3D7 ;@ F:7 E7DH;57E E75FAD ,:7 E3?B>7 A8 D7@5: MD?E ;E ?AD7 7H7@>K 6;EFD;4GF76 3?A@9 FD367 ?3@G835FGD;@9 3@6 E7DH;57E E75FADE I:;>7 F:7 7D?3@ E3?B>7 6;T7DE 8DA? F:7 AF:7D 5AG@FD;7E E;@57 ;F 5A@F3;@E 3 ?G5: :;9:7D B7D57@F397 A8 MD?E ;@ F:7 E7DH;57E 3@6 ;@ GF;>;F;7E FD3@EBADF 3@6 5A??G@;53F;A@E E75FADE
,:7 GBB7D B3@7> A8 ,34>7 D7BADFE F:7 ?73@ 3@6 ?76;3@ H3>G7E A8 F:7 H3D;34>7E GE76 ;@ F:7 75A@A?7FD;5 3@3>KE;E E77 3F3 BB7@6;J 67F3;> A@ F:7 67M@;F;A@ A8 F:7 H3D;34>7E GE76 E 53@ 47 E77@ F:7 ;@H7EF?7@F D3F7 F:7 BDAMF34;>;FK D3F;A 3@6 ?AD7 E;9@;M53@F>K F:7 674F 4GD67@ E:AI 3 BAE;F;H7>K E=7I76 6;EFD;4GF;A@ ,:7 ;@H7EF?7@F D3F7 BD7E7@FE 3 ?76;3@ H3>G7 3DAG@6 AH7D F:7 E3?B>7 B7D;A6 7J57BF 8AD 7D?3@K I:7D7 ;F ;E EA?7I:3F >AI7D E 53@ 47 E77@ ;@ :3DF ;F D735:76 ;FE :;9:7EF >7H7> ;@ ;@ ?AEF 5AG@FD;7E 3@6 F:7D738F7D 675>;@76 G@F;> D7N75F;@9 F:7 E>AI6AI@ ;@ 75A@A?;5 9DAIF: ;@ F:7 7GDA 3D73 F F:7 E3?7
+%E 3D7 MD?E F:3F E3F;E8K FIA AGF A8 F:7 8A>>AI;@9 F:D77 5A@6;F;A@E ?3J;?G? @G?47D A8 7?B>AK77E
F;?7 MD?E 9DAI 83EF7D ;8 E3>7E ;@5D73E7 ;E F3=7@ 3E 3 BDAJK 8AD 9DAIF: A@ 3H7D397 ;@ +B3;@ 3@6 D3@57 I:;>7 !F3>;3@ MD?E :3H7 :3D6>K 9DAI@ A@ 3H7D397 6GD;@9 F:7 E3?B>7 B7D;A6 !@ 3>> 5AG@FD;7E F:7 ?76;3@ E3>7E 9DAIF: D3F7 D75AD676 ?;@;?G? H3>G7E ;@ 3@6 3 D75AH7DK 38F7DI3D6E 7J57BF ;@ +B3;@ +B3@;E: MD?E E:AI76 F:7 :;9:7EF 9DAIF: D3F7E ;@ F:7 ?;6@;@7F;7E 3@6 ;@ 5A@FD3EF D75AD676 FA97F:7D I;F: !F3>;3@ MD?E F:7 >AI7EF ;@5D73E7E 3F F:7 7@6 A8 F:7 E3?B>7 B7D;A6 E 8AD F:7 6;EB7DE;A@ ;@ E3>7E 9DAIF: ?73EGD76 4K F:7 5A7S5;7@F A8 H3D;3F;A@ F:7 >3D97EF H3>G7E 3D7 A4E7DH76 ;@ F:7 &7F:7D>3@6E 3@6 ;@ +B3;@
,:D77 M@3@5;3> D3F;AE :3H7 477@ 5:AE7@ 3E 3 BDAJK 8AD M@3@5;3> BD7EEGD7 BDAMF34;>;FK @7F ;@674F76@7EE 3@6 F:7 ;@F7D7EF D3F7 4GD67@ (DAMF34;>;FK 67M@76 3E 53E: NAI FA FAF3> 3EE7FE ;@6;53F7E F:3F F:7 FKB;53> !F3>;3@ BDAJ;76 4K F:7 F: B7D57@F;>7 ;E F:7 A@7 I:;5: 8357E :;9:7D M@3@5;3> BD7EEGD7 ;@ 5A?B3D;EA@ I;F: F:7 D7EF A8 F:7 5AG@FD;7E E77 :3DF !FE BDAMF34;>;FK D3F;A EF3@6E 47>AI F:7 M9GD7 A4E7DH76 8AD F:7 &7F:7D>3@6E I:7D7 F:7 >3D97EF H3>G7E 3D7 D75AD676 ,:7 >3FF7D 5AG@FDK D75AD676 F:7 >3D97EF 6DAB ;@ F:7 73D>K E 4GF :3E 3>EA E:AI@ F:7 ?AEF E;9@;M53@F D75AH7DK 38F7DI3D6E !F ;E 3>EA @AF;5734>7 F:7 6AI@I3D6 FD7@6 A4E7DH76 8DA? 7@6@;@7F;7E ;@ F:7 ?76;3@ BDAMF34;>;FK >7H7> ;@ +B3;@
,:7 E75A@6 M@3@5;3> D3F;A 5A@E;67D76 ;E @7F ;@674F76@7EE 67M@76 3E F:7 D3F;A A8 AGF EF3@6;@9 674F ?;@GE 53E: 3@6 ;FE 7CG;H3>7@F FA FAF3> 3EE7FE !F 53BFGD7E F:7 ;?BADF3@57 A8 674F 8AD MD?E A@57 36<GEF76 8AD >;CG;6;FK 3F 6;EBAE3> 74F ;@5>G67E FD367 5D76;F E;@57 8AD EA?7 5AG@ FD;7E F:7D7 ;E @A ;@8AD?3F;A@ A@ F:;E H3D;34>7 8AD ?AEF A8 F:7 5A?B3@;7E ;@ F:7 E3?B>7 E 53@ 47 E77@ ;@ :3DF 3 6AI@I3D6 FD7@6 :3E 477@ A4E7DH76 ;@ F:7 ?76;3@ H3>G7 A8 F:;E D3F;A ;@ 3>> F:7 5AG@FD;7E 3@3>KE76 4GF E;9@;M53@F 6;T7D7@57E ;@ ;@674F76@7EE >7H7>E 3D7 A4E7DH76 35DAEE 5AG@FD;7E D3@57 E:AIE F:7 >AI7EF >7H7>E 8AD F:;E H3D;34>7 3DAG@6 3F F:7 7@6 A8 F:7 E3?B>7 B7D;A6 ;@ >;@7 I;F: F:7 5A?B3D3F;H7>K :;9:7EF D7>;3@57 A8 D7@5: MD?E A@ E:3D7E 3@6 AF:7D 7CG;FK 3E 3 EAGD57 A8 7JF7D@3> M@3@57 ,:7 :;9:7EF H3>G7E 3D7 D75AD676 8AD !F3>;3@ MD?E 3DAG@6
,:7 D7>3F;H7 4GD67@ A8 674F ;E F:7 MD?EO 53B35;FK FA ?77F ;@F7D7EF B3K?7@FE I;F: F:7 D7EG>FE ;F 97@7D3F7E E77 :3DF !F ;E 67M@76 3E F:7 D3F;A A8 ;@F7D7EF B3K?7@FE FA 73D@;@9E 478AD7 ;@F7D7EF F3J7E 67BD75;3F;A@ 3@6 3?ADF;L3F;A@ B>GE M@3@5;3> D7H7@G7 ,:7D78AD7 ;F D7N75FE F:7 ;?B35F A8 5:3@97E ;@ ;@F7D7EF D3F7E D7>3F76 FA 97@7D3> 5D76;F 5A@6;F;A@E 3F 5AG@FDK >7H7> 5A?B3@K BDAMF34;>;FK 3@6 ;FE ;@674F76@7EE E 53@ 47 E77@ F:;E D3F;A E:AI76 3 6AI@I3D6 FD7@6 ;@ F:7 E75A@6 :3>8 A8 F:7 @;@7F;7E ;@ >;@7 I;F: 675D73E;@9 ;@F7D7EF D3F7E 3@6 ;@5D73E76 E>;9:F>K 38F7DI3D6E ;@ F:7 B7D;A6 I:7@ 3 D76G5F;A@ ;@ BDAMF34;>;FK I3E D75AD676 ;@ ?AEF 5AG@FD;7E 'H7D F:7 E3?B>7 B7D;A6 F:7 FKB;53> D7@5: MD? E:AIE F:7 >AI7EF 674F4GD67@ D3F;A
while the typical Italian rm shows the highest one, in line with the higher indebtedness and
lower protability ratios observed in this country. Dierences in the debt structure of rms are
also playing a role in explaining debt burden dispersion across countries. For example, Italian
rms have traditionally relied on expensive short-term debtnancing, something that probably
contributes to their higher debt burden ratios (although this has changed in the recent years, when they have importantly reduced the weight of short-term debt on their liabilities). Likewise, the comparatively high reliance on inter-company loans in Belgium -a source of funds cheaper than bank loans- probably contributes to explain the relatively low debt burden observed in this
country. Non-nancial corporations in Germany are those more dependent on bank loans, while
French companies are those that rely comparatively more on securities other than shares as a
source of externalnancing2.
To sum up, Italy is the country in which the position of the medianrm seems
compar-atively weaker while the strongest position is observed for Frenchrms, which are characterised
by the lowest levels of indebtedness and interest burden and by relatively high growth rates of
sales and high protability and investment ratios.
4
The impact of
nancial variables on
rms’ investment
decisions: descriptive evidence
The descriptive analysis of the previous section has shown that there exists a noticeable
hetero-geneity in thenancial variables under consideration across countries not only in their
develop-ment over time but also in their levels. A key question to analyse is whether these dierences in
nancial position are going to have an impact onrms’ spending decisions and, more specically,
onrms’ investment rates.
A simple way to obtain some preliminary evidence about hownancial pressure aects
rms’ investment is to plot how the investment rate varies in each country acrossrms facing
dierent degree ofnancial pressure. For this purpose, Charts 6, 7 and 8 compare the median
level of the investment rate in each country for three dierent corporate groupings, which are
dened on the basis of their nancial position. The latter is proxied by cash ow (Chart 6),
indebtedness (Chart 7) and debt burden (Chart 8).
In particular, the dierent panels in Chart 6 present the median investment rate in each
2See Task Force of Monetary Policy Committee of the ESCB (2007) for a description of the liability composition of non-nancial corporations’ balance sheets in euro area countries in the period 1995-2005.
country forrms with high cash ow -over assets- (above the 90th percentile), medium cash ow
(rms for which this ratio stands between the 45th and the 55th percentile) and low cash ow
(lower decile). As can be seen, there is a clear relationship between prots generated andrms’
capital demand, asrms with higher level of cash ow over their assets show higher investment
rates.
Chart 7 depicts the median investment rates forrms facing dierent degrees ofnancial
pressure when it is measured by the indebtedness level3. Although debt may have some desirable
properties (it allows nancing projects in the absence of internal resources), the commitment
to repay the debt may have a negative in uence onrms’ spending decisions. The descriptive
evidence shown in the chart points in this direction for Belgium, Germany and France, since
investment rates present a negative relationship with indebtedness. In the two rst of these
countries, a non-linear relationship seems to exist between indebtedness and investment rates,
since there are not marked dierences in investment rates for rms with a moderate and low
level of indebtedness while for highly indebted rms their demand for capital is substantially
lower. In Italy, the Netherlands and Spain the relationship derived from this descriptive analysis seems to be less clear-cut.
Chart 8 compares the investment rates using the relative burden of debt as a proxy for
nancial pressure. Firms with a higher debt burden in relation to their capacity to generate funds
have substantially lower investment rates in all countries. This simple descriptive analysis also indicates that in some countries (especially Belgium, the Netherlands and Spain, and somewhat
less clearly, Italy) the relationship betweennancial pressure and investment might be non-linear,
as no marked dierences in investment rates are observed between thoserms with the lowest
nancial pressure and those with average nancial pressure, while rms facing a high degree
of nancial pressure show substantially lower investment rates. This hypothesis has already
been tested in Hernando and Martinez-Carrascal (2008) for a dierent sample of Spanishrms,
where evidence supporting a non-linear relationship between investment and nancial position
was found.
Overall, this descriptive evidence suggests that nancial pressure can negatively aect
rms’ capital demand. The existence of a link betweennancial position andrms’ investment
rates becomes especially clear when nancial pressure is proxied by means of protability and
debt burden. The relationship becomes somewhat more blurred when the relationship between
3As in the analysis presented for protability,rms in three dierent deciles (the 10% ofrms with the lowest indebtedness, those for which this ratio stands between 45th and 55th percentiles of the distribution and, those in the higher decile) are considered.
;@674F76@7EE 3@6 ;@H7EF?7@F D3F7E ;E 3@3>KE76 ,:7 34E7@57 A8 3 5>73D >;@= ;@ F:;E 53E7 ?;9:F 47 F:7 D7EG>F A8 FIA ABBAE;F7 7T75FE A@ F:7 A@7 :3@6 :;9:>K ;@674F76 MD?E ?3K 7JB7D;7@57 BDA4>7?E ;@ 93;@;@9 3557EE FA 366;F;A@3> 7JF7D@3> 8G@6E FA M@3@57 F:7;D BDA<75FE A@ F:7 AF:7D :3@6 5A?B3@;7E I;F: :;9:7D ;@H7EF?7@F >7H7>E ?;9:F 47 F:AE7 F:3F :3H7 477@ ?AD7 EG557EE8G> ;@ 3FFD35F;@9 7JF7D@3> 8G@6E FA M@3@57 F:7;D 9DAIF: ABBADFG@;F;7E
# &$,'#" " &'!'#" !'#
,:7 7EF;?3F;A@ 3@3>KE;E ;@ F:;E E75F;A@ 5A@E;EFE ;@ 7J3?;@;@9 F:7 D7EBA@E;H7@7EE A8 MJ76 ;@H7EF ?7@F FA 5:3@97E ;@ F:7 M@3@5;3> BAE;F;A@ 83576 4K 3 5A?B3@K I:;5: ;E BDAJ;76 4K ?73@E A8 F:7 F:D77 M@3@5;3> H3D;34>7E BD7E7@F76 ;@ F:7 BD7H;AGE E75F;A@ BDAMF34;>;FK ;@674F76@7EE 3@6 674F 4GD67@ ,:7 ?A67> 7EF;?3F76 ;E 3@ 7DDAD5ADD75F;A@ ?A67> I:;5: EB75;M7E 3 F3D97F >7H7> A8 F:7 53B;F3> EFA5= 3@6 3>>AIE 8AD 3 N7J;4>7 EB75;M53F;A@ A8 F:7 E:ADFDG@ ;@H7EF?7@F 6K@3?;5E ;@ I:;5: I7 366 6;T7D7@F M@3@5;3> ;@6;53FADE 3E BAF7@F;3> 7JB>3@3FADK H3D;34>7E ,:7 67BD75;3F;A@ D3F7 ;E EG4EG?76 ;@FA F:7 G@A4E7DH76 MD?EB75;M5 7T75FE 3@6 ;F ;E 3EEG?76 F:3F H3D;3F;A@ ;@ F:7 GE7D 5AEF A8 53B;F3> 53@ 47 5A@FDA>>76 8AD 4K ;@5>G6;@9 F;?7EB75;M5 E75FAD3>EB75;M5 3@6
MD?EB75;M5 7T75FE ,:7 7CG3F;A@ FA 47 7EF;?3F76 ;E
I:7D7 ;@67J7E 5A?B3@;7E 3@6 ;@67J7E K73D 67@AF7E 3 MDEF
6;T7D7@57 !# ;E F:7 ;@H7EF?7@F D3F7 ;E F:7 >A9 A8 D73> E3>7E ;E F:7 >A9 A8 D73> MJ76 53B;F3>
EFA5= 3@6 0 D7BD7E7@FE 3 H75FAD A8 M@3@5;3> H3D;34>7E BDAMF34;>;FK ;@674F76@7EE 3@6 674F
4GD67@ 3>D736K 67E5D;476 ;@ F:7 BD7H;AGE E75F;A@ ,:7E7 M@3@5;3> D3F;AE 3D7 >39976 A@7 B7D;A6 FA
D76G57 BAEE;4>7 7@6A97@7;FK 3D7 5A?B3@KEB75;M5 MJ76 7T75FE3D7 F;?7 7T75FE F:3F 5A@FDA>
+77 A@6 AD A@6 8AD 67F3;>E A@ F:7 67D;H3F;A@ A8 F:7 ;@H7EF?7@F ?A67> %AD7
EFDG5FGD3> ?A67>E EG5: 3E ) ?A67>E IAG>6 47 ?AD7 3BBDABD;3F7 8DA? 3 F:7AD7F;53> BA;@F A8 H;7I 4753GE7 F:7K 5A@FDA> 8AD 7JB75F3F;A@E 34AGF 8GFGD7 BDAMF34;>;FK 3@6 :7@57 ;F 53@ 47 3D9G76 F:3F M@3@5;3> H3D;34>7E IAG>6 @AF 7@F7D F:7 EB75;M53F;A@ 3E BDAJ;7E 8AD 8GFGD7 ;@H7EF?7@F ABBADFG@;F;7E E77 8AD 7J3?B>7 3LL3D; AI7H7D F:;E FKB7 A8 ?A67>E 53@ 47 E;9@;M53@F>K 3T75F76 4K ?73EGD7?7@F 7DDADE 3@6 :3E A8F7@ 83;>76 FA BDA6G57 E;9@;M53@F 3@6 5ADD75F>K E;9@76 =7K B3D3?7F7DE AD F:;E D73EA@ I7 7EF;?3F7 3@ 7DDAD 5ADD75F;A@ ?A67> I:;5: ;E EF3@63D6 ;@ F:7 ;@H7EF?7@F >;F7D3FGD7 3@6 I:;5: 3E 7?B:3E;L76 ;@ A@6 7F 3> F7@6E FA 6;EB>3K ?AD7 D73EA@34>7 B3D3?7F7DE F:3@ EFDG5FGD3> ?A67>E !@ 3@K 53E7 F:7 7EF;?3F;A@ A8 3 ) ?A67> ;E @AF BAEE;4>7 :7D7 E;@57 ?AEF A8 F:7 MD?E ;@ F:7 E3?B>7 3D7 @AF CGAF76 3@6 :7@57 F:7 GEG3> ) H3D;34>7 53@@AF 47 5A@EFDG5F76
8AD ?35DA75A@A?;5 ;@NG7@57E A@ MJ76 ;@H7EF?7@F 5A??A@ 35DAEE 5A?B3@;7E 3@65A@FDA> 8AD
E75FAD3> 7T75FE 5A@EF3@F AH7D F;?7 ;E 3 E7D;3>>KG@5ADD7>3F76 4GF BAEE;4>K :7F7DAE=763EF;5
7DDAD ,:7 5A7S5;7@FE 3@6 ;@6;53F7 F:7 E:ADFDG@ D7EBA@E;H7@7EE A8 MJ76 ;@H7EF?7@F FA
E3>7E 9DAIF: I:;>EF F:7 5A7S5;7@F ;@6;53F7E F:7 EB776 A8 36<GEF?7@F A8 F:7 53B;F3> EFA5=
FAI3D6E ;FE 67E;D76 >7H7> 53BFGD7E F:7 ;?B35F A8 F:7 M@3@5;3> D3F;A ;@FDA6G576 ;@ F:7 7CG3F;A@
BAE;F;H7 5A7S5;7@F ;E 7JB75F76 8AD BDAMF34;>;FK 3@6 @793F;H7 A@7E 8AD 674F 4GD67@ 3@6 ;@674F 76@7EE D3F;AE ,:;E 7CG3F;A@ ;E 7EF;?3F76 E7B3D3F7>K 8AD 735: A@7 A8 F:7 E;J 5AG@FD;7E 5A@E;67D76 I;F: F:7 63F3 5A@F3;@76 ;@ F:7 %-+ 63F343E7
,:7 7EF;?3F;A@ ?7F:A6 5A@E;EFE A8 F:7 %%+KEF7? 7EF;?3FAD BDABAE76 4K D7>>3@A 3@6 AH7D 3@6 7J3?;@76 ;@ 67F3;> ;@ >G@67>> 3@6 A@6 ,:7E7 ?A67>E 5A@FDA> 8AD MJ76 7T75FE I;F: F:7 7EF;?3FAD 47;@9 3@ 7JF7@E;A@ A8 F:7 %% 7EF;?3FAD A8 D7>>3@A 3@6 A@6 3@6 7EF;?3F7E 7CG3F;A@E @AF A@>K ;@ MDEF 6;T7D7@57E 4GF 3>EA ;@ >7H7>E ,:7 GE7 A8 %%+KEF7? 7EF;?3FAD ;E 7EB75;3>>K <GEF;M76 ;@ F:7 53E7 A8 3GFAD79D7EE;H7 ?A67>E I;F: :;9: B7DE;EF7@57 ;@ F:7 63F3 EG5: F:3F F:7 >39976 >7H7>E A8 3 H3D;34>7 3D7 @AF :;9:>K 5ADD7>3F76 I;F: F:7 MDEF 6;T7D7@57 EA?7F:;@9 F:3F D7EG>FE ;@ M@;F7 E3?B>7 4;3E7E 3EEA5;3F76 I;F: I73= ;@EFDG?7@FE ;@ F:7 MDEF6;T7D7@57 7EF;?3FAD >G@67>> 3@6 A@6 E:AI F:3F ;@ F:7E7 5;D5G?EF3@57E 3>EA ;@5>G6;@9 F:7 >7H7>E 7CG3F;A@E ;@ F:7 EKEF7? 7EF;?3FAD AT7DE E;9@;M53@F 93;@E 5AG@F7D;@9 F:7 4;3E ,:7K 3>EA E:AI F:3F ;@ 3GFAD79D7EE;H76;EFD;4GF76 >39 ?A67>E MDEF6;T7D7@57E A8 F:7 H3D;34>7E 53@ 47 GE76 3E ;@EFDG?7@FE ;@ F:7 >7H7>E 7CG3F;A@E BDAH;676 F:3F F:7K 3D7 ?73@ EF3F;A@3DK ,:7 :;9: >7H7>E A8 E7D;3> 5ADD7>3F;A@ 6;EB>3K76 4K E7H7D3> H3D;34>7E ;@5>G676 ;@ F:7 ?A67>E 3@6 F:7 835F F:3F F:7K 53@ 47 D793D676 3E ?73@ EF3F;A@3DK 83HAGD F:7 GE7 A8 3 %%+KEF7? 7EF;?3FAD D3F:7D F:3@ F:7 MDEF6;T7D7@57 7EF;?3FAD
,:7 7EF;?3F;A@ ?7F:A6 D7CG;D7E F:7 34E7@57 A8 E75A@6 AD67D E7D;3> 5ADD7>3F;A@ ;@ F:7 MDEF 6;T7D7@576 D7E;6G3>E 8AD I:;5: F:7 F7EF A8 D7>>3@A 3@6 A@6 ;E BD7E7@F76 >347>>76
!8 F:7 G@67D>K;@9 ?A67>E D7E;6G3>E 3D7 ;@6776 I:;F7 @A;E7 F:7@ MDEFAD67D E7D;3> 5ADD7>3F;A@
E:AG>6 47 7JB75F76 ;@ F:7 MDEF6;T7D7@576 D7E;6G3>E 8AD I:;5: I7 3>EA BD7E7@F F:7 F7EF A8 D7>>3@A
3@6 A@6 >347>>76 /7 3>EA D7BADF F:7 D7EG>FE A8 F:7 +3D93@ F7EF A8 AH7D;67@F;8K;@9
D7EFD;5F;A@E 3E F7EF 8AD ;@EFDG?7@F H3>;6;FK ;@ F:7 %%+KEF7? 7CG3F;A@E $39976 >7H7>E A8 F:7 7JB>3@3FADK H3D;34>7E 3D7 GE76 3E ;@EFDG?7@FE
,:7 7EF;?3F;A@ I3E ;@;F;3>>K 53DD;76 AGF GE;@9 F:7 E3?7 E7F A8 ;@EFDG?7@FE 8AD 3>> F:7 5AG@FD;7E 4GF ;@ EA?7 5AG@FD;7E E75A@6 AD67D 3GFA5ADD7>3F;A@ F7EFE 3@6 +3D93@ F7EFE D7<75F76 F:7 H3>;6;FK A8 F:7 ;@EFDG?7@FE ,A 3HA;6 F:;E BDA4>7? 3>F7D@3F;H7 E7FE A8 ;@EFDG?7@FE I7D7 GE76 8AD F:7 6;T7D7@F 5AG@FD;7E 5:75=;@9 38F7DI3D6E ;8 F:7D7 I7D7 E;9@;M53@F 5:3@97E ;@ F:7 D7EG>FE
A4F3;@76 ,:7 E;9@;M53@57 A8 F:7 H3D;34>7E A8 ;@F7D7EF D7?3;@E I:7@ GE;@9 3 5A??A@ E7F A8
;@EFDG?7@FE
&( '&
,34>7 E:AIE F:7 D7EG>FE A4F3;@76 8AD F:7 43E7>;@7 EB75;M53F;A@ F:3F ;E 478AD7 ;@5>G6;@9 M@3@5;3> H3D;34>7E E 53@ 47 E77@ F:7 D7EG>FE 3D7 ;@ >;@7 I;F: F:AE7 8AG@6 ;@ E;?;>3D EFG6;7E E77
3?A@9EF AF:7DE A@6 AD 7D@3@6A 3@6 %3DF;@7L3DD3E53> F:7 7DDAD
5ADD75F;A@ F7D? ;E 5ADD75F>K E;9@76 3@6 EF3F;EF;53>>K E;9@;M53@F 3@6 F:7 E3>7E 9DAIF:
7;F:7D 5A@F7?BAD3@7AGE AD >39976 :3E 3 BAE;F;H7 E:ADFDG@ ;?B35F A@ ;@H7EF?7@F I:;5: ;E
EF3F;EF;53>>K E;9@;M53@F 3F 5A@H7@F;A@3> E;9@;M53@57 >7H7>E ;@ 3>?AEF 3>> 53E7E >EA ;@ >;@7 I;F:
F:7E7 EFG6;7E >39976 ;@H7EF?7@F D3F7 ;E 8AG@6 FA 47 ;@E;9@;M53@F ;@ 3>> F:7 5AG@FD;7E 7J57BF D3@57 /7 M@6 F:7 7JB75F76 MDEFAD67D E7D;3> 5ADD7>3F;A@ ;@ AGD MDEF6;T7D7@576 D7E;6G3>E I:;>7 F:7D7 ;E @A 7H;67@57 A8 E75A@6 AD67D E7D;3> 5ADD7>3F;A@ F:7 =7K D7CG;D7?7@F 8AD H3>;6;FK A8 AGD ;@EFDG?7@F3F;A@ EFD3F79K ,:7 +3D93@ F7EF EF3F;EF;5E 3D7 ;@E;9@;M53@F 3F 5A@H7@F;A@3> >7H7>E ,34>7 BD7E7@FE F:7 E3?7 D79D7EE;A@ 4GF ;@5>G6;@9 F:7 BDAMF34;>;FK ;@6;53FAD AD 3>> 5AG@FD;7E BDAMF34;>;FK FGD@E AGF FA 47 E;9@;M53@F !F3>K E:AIE F:7 :;9:7EF 7EF;?3F76 5A7S5;7@F 8AD 735: B7D57@F397 BA;@F ;@5D73E7 ;@ BDAMF34;>;FK ;@H7EF?7@F D3F7 ;@5D73E7E 4K B7D57@F397 BA;@FE I:;>7 ;@ 5A@FD3EF 7D?3@K E:AIE 3 D7>3F;H7>K >AI7D >7H7> ;@ 5A?B3D;EA@ I;F: F:7 D7EF A8 F:7 5AG@FD;7E EA?7I:3F >7EE F:3@ :3>8 F:7 A@7 7EF;?3F76 8AD !F3>K ,:7 5AG@FDKD3@=;@9 355AD6;@9 FA F:7 ?39@;FG67 A8 F:7 7EF;?3F76 53E: NAI 5A7S5;7@F ;E F:7 E3?7 3E F:3F D7BADF76 ;@
:3F7>3;@ I:7D7 53E: NAI E7@E;F;H;F;7E A8 ;@H7EF?7@F :3H7 477@ F7EF76 8AD 7D?3@K
D3@57 !F3>K 3@6 +B3;@ E ;F :3E 477@ 7JF7@E;H7>K 6;E5GEE76 ;@ F:7 >;F7D3FGD7 A@ ;@H7EF?7@F 3@6 M@3@5;3> 5A@EFD3;@FE 3 E;9@;M53@F 53E: NAI 5A7S5;7@F ?;9:F @AF 47 7@AG9: FA BDAH7 F:7 7J;EF7@57 A8 M@3@5;@9 5A@EFD3;@FE E;@57 53E: NAI 7T75FE 5AG>6 <GEF 47 3 BDAJK 8AD ;@H7EF?7@F ABBADFG@;F;7E AI7H7D FA F:7 7JF7@F F:3F 3 E;?;>3D D7>3F;A@E:;B 47FI77@ 5GDD7@F 53E: NAI 3@6
"GEF ;@ A@7 53E7 E77 8AAF@AF7 F:7 E;9@;M53@57 E77?E FA 67B7@6 ?AD7 A@ F:7 E7F A8 ;@EFDG?7@FE GE76 +77
,34>7E 3@6 ;@ BB7@6;J 8AD D7EG>FE GE;@9 5A??A@ ;@EFDG?7@FE 8AD 3>> 5AG@FD;7E
"GEF 8AD +B3;@ E3>7E 83>> E:ADF A8 E;9@;M53@57 3>F:AG9: F:7 BH3>G7 3EEA5;3F76 FA >39976 9DAIF: D3F7 A8 E3>7E
;@ F:;E 5AG@FDK ;E CG;F7 >AI AD F:7 7DDAD 5ADD75F;A@ F7D? F:7 BH3>G7 ;E 3>EA EA?7I:3F 34AH7 ;@ F:7 D7@5: 53E7 @ 3@A@K?AGE D787D77 EG997EF76 F:3F F:;E >35= A8 E;9@;M53@57 5AG>6 47 6D;H7@ 4K F:7 GE7 A8 3 FAA :7F7DA97@7AGE E3?B>7 3@6 EG997EF76 FA D7B73F F:7 7EF;?3F;A@ BD7E7@F76 ;@ F:;E B3B7D GE;@9 A@>K 5A?B3@;7E ;@ F:7 ?3@G835FGD;@9 E75FAD ,:7 D7EG>FE 3D7 BD7E7@F76 ;@ BB7@6;J ,:;E 5:3@97 ;@ F:7 E3?B>7 6A7E @AF :3H7 EG4EF3@F;3> ;?B35F A@ F:7 D7EG>FE 4GF ;@6776 3@ ;@5D73E7 ;@ F:7 E;9@;M53@57 A8 F:7 7DDAD 5ADD75F;A@ F7D?E ;E A4E7DH76 ;@ EA?7 53E7E
8GFGD7 BDAMF34;>;FK 35DAEE 5AG@FD;7E 7J;EFE 6;T7D7@57E ;@ F:7 7EF;?3F76 5A7S5;7@FE A@ F:7 53E: NAI H3D;34>7E 3D7 ?AD7 >;=7>K FA D7N75F 6;T7D7@57E ;@ F:7 7T75FE A8 M@3@5;@9 5A@EFD3;@FE ,:7 D7EG>FE A8 3 E;?B>7 8AD753EF;@9 ?A67> 8AD BDAMF34;>;FK E77? FA BA;@F ;@ F:;E 6;D75F;A@ 3E F:7D7 3D7 @A E;9@;M53@F 6;T7D7@57E ;@ F:7 8AD753EF;@9 BAI7D A8 >39976 AD 5GDD7@F 53E: NAI 8AD 8GFGD7
BDAMF34;>;FK 35DAEE 5AG@FD;7E
!@ 366;F;A@ FA F:7 D7>3F;A@E:;B 47FI77@ ;@H7EF?7@F D3F7E 3@6 BDAMF34;>;FK ;F ;E 3>EA D7>7H3@F FA =@AI :AI 5A?B3@;7E ?3K 36<GEF ;@ F:7 >;9:F A8 43>3@57 E:77F BD7EEGD7E >;@=76 FA F:7;D >7H7> A8 ;@674F76@7EE ,34>7 E:AIE F:7 D7EG>FE A4F3;@76 I:7@ F:7 ;@674F76@7EE D3F;A ;E ;@5>G676 ;@ F:7 43E7>;@7 ;@H7EF?7@F 7CG3F;A@ !@ >;@7 I;F: F:7 67E5D;BF;H7 7H;67@57 E:AI@ 34AH7 3 @793F;H7 3@6 E;9@;M53@F 5A7S5;7@F ;E A4F3;@76 ;@ 7>9;G? 3@6 D3@57 >EA 8AD !F3>K 3@6 +B3;@ 7H;67@57 ;@ 83HAGD A8 3 5A@FD35F;H7 ;?B35F A8 ;@674F76@7EE A@ ;@H7EF?7@F D3F7E ;E 8AG@6 I:;5: I3E @AF EA 5>73D5GF 355AD6;@9 FA F:7 67E5D;BF;H7 3@3>KE;E !@ F:7 7D?3@K 3@6 ;@ F:7 &7F:7D>3@6E F:;E H3D;34>7 FGD@E AGF FA 47 ;@E;9@;M53@F AI7H7D ;@ F:7 GF5: 53E7 F:7 D3F:7D >;?;F76 E;9@;M53@57 A8 F:;E D3F;A E77?E FA 47 >;@=76 FA F:7 835F F:3F F:7 5A7S5;7@FE 3D7
7EF;?3F76 CG;F7 ;?BD75;E7>K D3F:7D F:3@ FA 3 >AI ?39@;FG67 7@57 F:7E7 D7EG>FE EG997EF F:3F
3 :;9: >7H7> A8 674F 53@ >736 FA 43>3@57 E:77F 36<GEF?7@FE ;@ F:7 8AD? A8 5A?B3@;7E 6787DD;@9 AD 8AD79A;@9 ;@H7EF?7@F BDA<75FE E77 .7D?7G>7@ 8AD 3@ ;@6GEFDK>7H7> EFG6K ,:7 5A?B3D;EA@ A8 5A7S5;7@FE 35DAEE 5AG@FD;7E E:AIE F:3F F:7 >3D97EF E7@E;F;H;FK A8 ;@H7EF?7@F FA ;@674F76@7EE 5:3@97E ;E A4E7DH76 ;@ F:7 &7F:7D>3@6E 3@6 FA 3 ?;@AD 7JF7@F ;@ !F3>K I:;>7 7D?3@ MD?E BD7E7@F F:7 >AI7EF E7@E;F;H;FK
;@3>>K ,34>7 E:AIE F:7 D7BADFE A4F3;@76 I:7@ M@3@5;3> BD7EEGD7 ;E BDAJ;76 4K 674F 4GD67@ +;9@;M53@F @793F;H7 5A7S5;7@FE 3D7 ;@6;53F;A@E F:3F ?A@7F3DK BA>;5K :3E 3@ ;?B35F A@ MD?EO ;@H7EF?7@F D3F7E F:DAG9: F:7 ;@6G576 5:3@97E ;@ F:7 5AEFE A8 674F E7DH;5;@9 '@>K
;@ 7D?3@K F:7 E;9@;M53@57 A8 F:;E ;@6;53FAD ;E EA?7I:3F ?AD7 >;?;F76 BH3>G7 ,:7
:;9:7EF D7EBA@E7 FA 5:3@97E ;@ 674F 4GD67@ ;E 7EF;?3F76 8AD F:7 &7F:7D>3@6E 3@6 !F3>K 7>9;G?
D3@57 3@6 +B3;@ E:AI >AI7D 3@6 E;?;>3D ;@H7EF?7@F D3F7 E7@E;F;H;F;7E I:;5: 3D7 34AH7 F:7
*7EG>FE 3H3;>34>7 GBA@ D7CG7EF
/:7@ F:7 3@3>KE;E ;E <GEF 43E76 A@ 3 ?AD7 :A?A97@7AGE E3?B>7 ;@5>G6;@9 A@>K ?3@G835FGD;@9 MD?E F:;E
D3F;A ;E 8AG@6 FA 47 E;9@;M53@F 8AD 3 E;9@;M53@57 >7H7> BH3>G7 +77 BB7@6;J
,:7 E;9@;M53@57 A8 F:7 674F 4GD67@ ;@6;53FAD ;@ 7D?3@K ;E 3>EA ?AD7 67B7@67@F A@ F:7 E7F A8 ;@EFDG?7@FE
GE76 F:3@ ;@ F:7 D7EF A8 F:7 5AG@FD;7E !@ 835F I:7@ GE;@9 5A??A@ ;@EFDG?7@FE 8AD 3>> 5AG@FD;7E F:7 E;9@;M53@57 A8 F:;E H3D;34>7 675D73E7E 8GDF:7D E77 BB7@6;J
,:7 BH3>G7 3EEA5;3F76 FA F:7 +3D93@ F7EF ;@ F:7 !F3>;3@ 53E7 ;E H7DK >AI 4GF F:7 %EF3F;EF;5 ;@6;53F7E F:3F F:7 =7K 5A@6;F;A@ 8AD ;@EFDG?7@F H3>;6;FK :A>6E '@ F:7 43E;E A8 %A@F7 3D>A 3@3>KE;E >G@67>> 7F 3> D7BADF F:3F F:7 +3D93@ F7EF F7@6E FA AH7DD7<75F ;@ F:7 5A@F7JF A8 F:;E 7EF;?3FAD !@ >;@7 I;F: F:;E &;5=7>> 3@6 &;5A>;FE3E D7BADF E;9@;M53@F +3D93@ F7EF EF3F;EF;5E 8AD 3>> F:7;D D79D7EE;A@ D7EG>FE
7EF;?3F7E 8AD 7D?3@K
'H7D3>> F:7E7 75A@A?7FD;5 D7EG>FE EGBBADF F:7 :KBAF:7E;E F:3F M@3@5;3> BD7EEGD7 83576 4K MD?E ;E ;?BADF3@F FA 7JB>3;@ 5ADBAD3F7 675;E;A@E A@ MJ76 ;@H7EF?7@F 3E ;@674F76@7EE 674F 4GD67@ 3@6 BDAMF34;>;FK ;@6;53FADE 3D7 8AG@6 FA 47 E;9@;M53@F I:7@ ;@5>G676 ;@ ;@H7EF?7@F 7CG3F;A@E
,:7E7 D7EG>FE 53@ 47 GE76 FA CG3@F;8K F:7 ;?B35F A8 ?A@7F3DK BA>;5K A@ ;@H7EF?7@F F:DAG9: F:7 ;@6G576 5:3@97E ;@ F:7 5AEFE A8 674F E7DH;5;@9 +;?;>3D>K FA &;5=7>> 3@6 &;5A>;FE3E I7 3@3>KE7 I:;5: ;E F:7 ;?B35F A8 3@ ;@5D73E7 ;@ ;@F7D7EF D3F7E A8 43E;E BA;@FE 8DA? I:;5: I3E F:7 >7H7> A8 F:7 3H7D397 5AEF A8 674F M@3@5;@9 ;@ F:7 7GDA 3D73 3F F:7 7@6 A8 FA -@67D F:7 3EEG?BF;A@ A8 @A MJ76 D3F7 674F F:;E ;?B>;7E 3@ ;@5D73E7 ;@ 674F 4GD67@ 5>AE7 FA ,:;E 53@ 47 GE76 FA97F:7D I;F: F:7 ;@8AD?3F;A@ A@ F:7 3H7D397 >7H7>E A8 674F 4GD67@ 35DAEE 5AG@FD;7E ;@ FA 5A?BGF7 F:7 ;?B35F A@ ;@H7EF?7@F D3F7 A8 F:;E ;@5D73E7 ;@ ;@F7D7EF D3F7E 3F F:7 7@6 A8 F:7 E3?B>7 B7D;A6 ,:7 D7EG>FE E:AI F:3F F:7 >3D97EF 5A@FD35F;H7 ;?B35F IAG>6 47 A4E7DH76 ;@ !F3>K F:7 3H7D397 5A?B3@K ;@ F:;E 5AG@FDK IAG>6 D76G57 ;FE ;@H7EF?7@F D3F7 4K B7D57@F397 BA;@F I:;5: 3?AG@FE FA A8 F:7 ?73@ H3>G7 ;@ I:;>7 ;@ F:7 &7F:7D>3@6E ;F IAG>6 47 BB A8 F:7 ?73@ H3>G7 ,:7 >AI7EF ;?B35F IAG>6 47 A4E7DH76 8AD 7>9;G? 7D?3@K 3@6 D3@57 3DAG@6 BB I:;>7 F:7 ;?B35F 8AD +B3;@ IAG>6 3>EA 47 D7>3F;H7>K ?A67D3F7 BB ,:7 ;?B35F ;@ !F3>K ;E @AF A@>K :;9:7D 4GF 3>EA ?AD7 G@7H7@>K 6;EFD;4GF76 9;H7@ F:7 >3D97D 6;EB7DE;A@ F:3F F:7 6;EFD;4GF;A@ ;@ 674F 4GD67@ BD7E7@FE ;@ F:;E 5AG@FDK
7@57 7H7@ ;8 F:7 ?3D9;@3> ;?B35F A8 5:3@97E ;@ F:7 674F 4GD67@ A@ ;@H7EF?7@F ;E 7E F;?3F76 FA 47 >AI7D 8AD !F3>K F:3@ 8AD F:7 &7F:7D>3@6E F:7 ;?B35F A8 F:7 ;@5D73E7 ;@ M@3@5;@9 5AEFE IAG>6 47 :;9:7D 8AD F:7 3H7D397 !F3>;3@ 5A?B3@K 3E ;F 8357E 3 :;9:7D 679D77 A8 M@3@ 5;3> BD7EEGD7 $;=7I;E7 ;@ EB;F7 A8 F:7 835F F:3F F:7 5A7S5;7@F 7EF;?3F76 8AD D3@57 ;E :;9:7D F:3@ 8AD 7D?3@K F:7 3H7D397 MD? ;@ D3@57 ;E F:7 A@7 >7EE 3T75F76 4K F:7 ;@5D73E7 9;H7@ ;FE 5A?B3D3F;H7>K EAG@67D M@3@5;3> BAE;F;A@ 'H7D3>> F:;E E;?B>7 7J7D5;E7 ;>>GEFD3F7E F:3F 4AF: F:7 :7F7DA97@7;FK ;@ F:7 ?39@;FG67 A8 F:7 ?3D9;@3> ;?B35F A8 674F 4GD67@ A@ ;@H7EF?7@F D3F7E 3@6 ;@ F:7 M@3@5;3> BAE;F;A@ 3D7 ;?BADF3@F FA ?3=7 3 BDAB7D 3EE7EE?7@F A8 F:7 ;?B35F A8 5:3@97E ;@ ?A@7F3DK BA>;5K A@ ;@H7EF?7@F D3F7E
' %)& .%"& " ")&'!"' %' &"&')'+ '#
,"" $%&&(% "& %#&& #("'%&
,:7 D7EG>FE BD7E7@F76 ;@ +75F;A@ BA;@F FA E;9@;M53@F 6;T7D7@57E 35DAEE 5AG@FD;7E ;@ F:7 E7@E; F;H;FK E:AI@ 4K ;@H7EF?7@F D3F7E FA 5:3@97E ;@ MD?EO M@3@5;3> BD7EEGD7 ,:;E E7@E;F;H;FK E77?E D7>3F;H7>K >AI ;@ 7D?3@K I:;>7 ;F ;E 67M@;F7>K :;9:7D ;@ F:7 &7F:7D>3@6E 3@6 ;@ !F3>K ;T7D 7@57E ;@ F:7 E;L7 3@6 E75FAD 5A?BAE;F;A@E A8 F:7 E3?B>7E GE76 3E I7>> 3E 6;T7D7@57E ;@ 5AG@FDK M@3@5;3> EFDG5FGD7E ?;9:F 47 ;?BADF3@F 7>7?7@FE FA 7JB>3;@ F:AE7 6;T7D7@57E ;@ E7@E;F;H;F;7E
MDEF 835FAD F:3F 53@ 47 BAF7@F;3>>K 5A@FD;4GF;@9 FA 7JB>3;@;@9 F:7 6;T7D7@57E ;@ F:7 D7EG>FE 35DAEE 5AG@FD;7E ;E F:7 6;T7D7@F 5A?BAE;F;A@ A8 F:7 E3?B>7 ;@ 735: A8 F:7 5AG@FD;7E 5A@ E;67D76 E BD7E7@F76 ;@ +75F;A@ E3?B>7E 8AD 7>9;G? D3@57 !F3>K 3@6 +B3;@ E:AI 3 ?G5: :;9:7D B7D57@F397 A8 +%E I:;>7 ;@ 7D?3@K 3@6 F:7 &7F:7D>3@6E F:7 E;L7 5A?BAE;F;A@ A8 F:7 E3?B>7 ;E >7EE D7BD7E7@F3F;H7 A8 F:7 35FG3> E;L7 5A?BAE;F;A@ ;@ F:7 BABG>3F;A@ 3@6 ?AD7 4;3E76 FAI3D6E >3D97 MD?E +%E 3D7 GEG3>>K F:AG9:F FA 47 ?AD7 3T75F76 4K F:7 3EK??7FD;5 ;@8AD ?3F;A@ BDA4>7?E F:3F 3D7 F:7 43E;E 8AD F:7 7J;EF7@57 A8 M@3@5;@9 5A@EFD3;@FE E;@57 F:7K 3D7 7JB75F76 FA 47 ?AD7 AB3CG7 FAI3D6E 7JF7D@3> ;@H7EFADE !@ B3DF;5G>3D F:7K 6A @AF GEG3>>K 7@F7D ;@FA BG4>;5>K H;E;4>7 5A@FD35FE 3@6 6A @AF GEG3>>K ;EEG7 FD3676 E75GD;F;7E F:3F 3D7 5A@F;@GAGE>K BD;576 ;@ BG4>;5 ?3D=7FE ,:7 7H;67@57 3H3;>34>7 ;@ F:;E D7EB75F ;@ F:7 7?B;D;53> >;F7D3FGD7 ;E :AI7H7D ;@5A@5>GE;H7 3E F:7D7 3D7 5A@N;5F;@9 D7EG>FE D793D6;@9 F:7 5ADD7>3F;A@ 47FI77@ E;L7 3@6
M@3@5;@9 5A@EFD3;@FE E 8AD AGD 75A@A?7FD;5 D7EG>FE F:;E 835FAD 5AG>6 7JB>3;@ I:K ;@H7EF?7@F
D3F7 E7@E;F;H;FK FA M@3@5;3> BAE;F;A@ 5:3@97E ;E D7>3F;H7>K >AI ;@ 7D?3@K 4GF @AF I:K ;F ;E 8AG@6 FA 47 7EB75;3>>K >3D97 ;@ F:7 &7F:7D>3@6E !@ 3@K 53E7 I:7@ I7 3>>AI 8AD 3 6;T7D7@F ?3D9;@3> ;?B35F A8 ;@674F76@7EE 674F 4GD67@ 3@6 BDAMF34;>;FK 8AD +%E 3@6 >3D97 MD?E AGD D79D7EE;A@ D7EG>FE 6A @AF 5A@5>GE;H7>K BA;@F FA +%E ;@H7EF?7@F D3F7E 47;@9 6;T7D7@F>K 3@6 ;@ B3DF;5G>3D ?AD7 @793F;H7>K 3T75F76 4K 5:3@97E ;@ F:7;D M@3@5;3> BAE;F;A@ F:3@ >3D97 MD?E E77 ,34>7 !@ 835F F:7 BA;@F 7EF;?3F7E A8 F:7 6;T7D7@57 ;@ F:7 E7@E;F;H;FK A8 ;@H7EF?7@F FA M@3@5;3> 835FADE 47 FI77@ +%E 3@6 >3D97 MD?E 3D7 @AF A@>K @A@E;9@;M53@F ;@ 97@7D3> 4GF 3>EA @A@ REKEF7?3F;53>>K BAE;F;H7 AD @793F;H7 '@>K 8AD 7>9;G? I7 M@6 EA?7 7H;67@57 ;@ 83HAGD A8 3 :;9:7D 5A@FD35F;H7 ;?B35F 8AD +%E A8 ;@5D73E7E ;@ M@3@5;3> BD7EEGD7 A@ ;@H7EF?7@F D3F7E ;@ >;@7 I;F: F:7 D7EG>FE
BD7E7@F76 ;@ GFL7@ 8AD F:;E 5AG@FDK 'H7D3>> AGD D7EG>FE ?;9:F 47 ;@6;53F;@9 F:3F
E;L7 ;E @AF 3 9AA6 ;@6;53FAD A8 ;@8AD?3F;A@3> 3EK??7FD;7E F:3F 3D7 A8F7@ ?7@F;A@76 3E A@7 A8 F:7 ?3;@ 835FADE >736;@9 ;@FA M@3@5;@9 5AEFD3;@FE
+77 ,3E= AD57 A8 F:7 %A@7F3DK (A>;5K A??;FF77 A8 F:7 + 8AD 3 D7H;7I A8 F:7 35367?;5 >;F7D3FGD7 A@ F:7 D7>3F;A@E:;B 47FI77@ M@3@5;@9 5A@EFD3;@FE 3@6 E;L7
;T7D7@57E ;@ F:7 E75FAD3> 5A?BAE;F;A@ A8 F:7 E3?B>7 5AG>6 3>EA 47 6D;H;@9 F:7 6;T7D7@57E ;@ ;@H7EF?7@F D3F7EO E7@E;F;H;F;7E 35DAEE 5AG@FD;7E ,:7D7 53@ 47 6;T7D7@57E ;@ F:7 679D77 A8 M@3@5;@9 5A@EFD3;@FE 83576 4K MD?E ;@ F:7 H3D;AGE E75FADE 6G7 8AD 7J3?B>7 FA 6;T7D7@57E ;@ F:7 3H3;>34>7 5A>>3F7D3> E E77@ ;@ ,34>7 5>AE7 FA A8 F:7 5A?B3@;7E ;@ F:7 7D?3@ E3?B>7 3D7 ;@ F:7 7>75FD;5;FK 93E 3@6 I3F7D EGBB>K E75FAD FD3@EBADF EFAD397 3@6 5A??G@;53F;A@E I:;>7 ;@ !F3>K 3@6 D3@57 F:;E B7D57@F397 ;E :3D6>K 34AH7 ,:7 +B3@;E: E3?B>7 3>EA E:AIE 3 >AI D3F7 A8 5A?B3@;7E ;@ F:;E E75FAD 47>AI I:;>7 8AD F:7 &7F:7D>3@6E F:7 A4E7DH76 B7D57@F397 ;E CG;F7 :;9:7D E MD?E ;@ F:7E7 E75FADE =77B 3 :;9: B7D57@F397 A8 MJ76 3EE7FE ;@ F:7;D 43>3@57 E:77FE F:7K ?;9:F 47 34>7 FA A4F3;@ ?AD7 73E;>K 7JF7D@3> M@3@57 F:3@ MD?E ;@ AF:7D E75FADE EG5: 3E 5A@EFDG5F;A@ 3@6 I:A>7E3>7 3@6 D7F3;> FD367 8AD I:;5: E:ADFF7D? 3EE7FE GEG3>>K >7EE EG;F34>7 FA 47 GE76 3E 5A>>3F7D3> 3D7 ?AD7 ;?BADF3@F AI7H7D I7 6A @AF M@6 3 5>73D 5GF 7H;67@57 EGBBADF;@9 EKEF7?3F;5 E75FAD3> 6;T7D7@57E ;@ F:7 ;?B35F A8 M@3@5;3> BAE;F;A@ A@ ;@H7EF?7@F 35DAEE 5AG@FD;7E E77 ,34>7
@AF:7D D73EA@ I:K M@3@5;@9 5A@EFD3;@FE ?;9:F 47 ?AD7 BAI7D8G> ;@ EA?7 5AG@FD;7E F:3@ ;@ AF:7DE ;E F:3F M@3@5;3> EKEF7?E 673> 6;T7D7@F>K I;F: 3EK??7FD;5 ;@8AD?3F;A@ BDA4>7?E !@ F:;E E7@E7 ;F ;E 5A??A@>K 3D9G76 F:3F M@3@5;@9 5A@EFD3;@FE ?;9:F 47 ?AD7 E7H7D7 ;@ ?AD7 ?3D=7FAD;7@F76 M@3@5;3> EKEF7?E 4753GE7 4ADDAI7DE 3@6 >7@67DE AB7D3F7 3F 3D?E>7@9F: D7>3 F;A@E:;B 5A?B3D76 FA 43@=43E76 EKEF7?E I:7D7 43@=E ;@H7EF ;@ >A@9F7D? D7>3F;A@E:;BE I;F:
F:7;D 5>;7@FE F:7D74K D76G5;@9 3EK??7FD;5 ;@8AD?3F;A@ BDA4>7?E ,:7 D7EG>FE ;@ A@6
8AD 7J3?B>7 BA;@F ;@ F:;E 6;D75F;A@ F:7K M@6 :;9:7D E7@E;F;H;FK A8 ;@H7EF?7@F D3F7E FA 5:3@97E ;@ 53E: NAI ;@ F:7 -@;F76 #;@96A? F:3@ ;@ ?AD7 43@=43E76 EKEF7?E EG5: 3E 7>9;G? D3@57 3@6 7D?3@K >EA .3>67DD3?3 8AD 7J3?B>7 M@6E F:3F GEFD;3@ 5A?B3@;7E I;F: F;9:F7D D7>3F;A@E:;BE I;F: F:7 ?3;@ 43@= D735F >7EE FA 53E: NAI F:3@ MD?E I;F: >7EE ;@F7@E7 D7>3
F;A@E:;BE ,:7 D7EG>FE 8AG@6 :7D7 3D7 B3DF>K ;@ >;@7 I;F: F:7 D7>3F;A@E:;B 5:3@@7> :KBAF:7E;E
3E 7D?3@K E:AIE F:7 >AI7EF E7@E;F;H;FK A8 ;@H7EF?7@F D3F7E FA 5:3@97E ;@ M@3@5;3> H3D;34>7E I:;>7 F:7 &7F:7D>3@6E EF3@6E ;@ F:7 ABBAE;F7 7JFD7?7 ,:7 P:AGE7 43@=EQ EKEF7? BD7H3;>;@9 ;@ 7D?3@K ;@ I:;5: MD?E 7EF34>;E: M@3@5;3> D7>3F;A@E:;BE I;F: A@>K A@7 43@= ;?B>;7E 3 ?G5: 5>AE7D >;@=397 FA 3 E;@9>7 43@= F:3@ ;@ ?3@K AF:7D 5AG@FD;7E EA?7F:;@9 F:3F 53@ :7>B FA D76G57 3EK??7FD;5 ;@8AD?3F;A@ BDA4>7?E !@ 3@K 53E7 F:;E :KBAF:7E;E :3E @AF 477@ F7EF76 6;D75F>K ;@ F:7 B3B7D 3@6 AGD 7EF;?3F76 D7EG>FE 53@ 3>EA 47 5A@E;EF7@F I;F: 3>F7D@3F;H7 7JB>3@3F;A@E !@ 835F I:;>7 F:7 E7@E;F;H;FK E77?E FA 47 F:7 :;9:7EF ;@ F:7 &7F:7D>3@6E 3 ?AD7 ?3D=7FAD;7@F76 $73H;@9 3E;67 F:7 36H3@F397E A8 5>AE7 D7>3F;A@E:;BE I;F: >7@67DE 8AD 3 9;H7@ ;@674F76@7EE >7H7> MD?E ?AD7 67B7@67@F A@ 43@= M@3@5;@9 I;>> 47 ?AD7 3T75F76 4K 5:3@97E ;@ F:7 EGBB>K A8 >A3@E F:3@ MD?E F:3F :3H7 73EK 3557EE FA AF:7D EAGD57E A8 7JF7D@3> M@3@5;@9 !@ >;@7 I;F: F:;E 33@ 3@6 +F7D=7@ 5A@5>G67 F:3F E?3>> BD;H3F7 MD?E GE7 >7EE 674F 38F7D 3 ?A@7F3DK F;9:F7@;@9 4GF EA?7I:3F >7EE ;@ 43@=43E76 75A@A?;7E
EKEF7? ;@ F:7 53E7 A8 7>9;G? 3@6 D3@57 I:7D7 7CG;FK M@3@5;@9 B>3KE 3@ ;?BADF3@F DA>7
;@H7EF?7@F E7@E;F;H;FK ;E @AF 8AG@6 FA 47 :;9: ;@ 5A?B3D;EA@ I;F: F:7 D7EF A8 F:7 5AG@FD;7E !@ F:7 53E7 A8 7>9;G? F:;E 5AG>6 47 B3DF>K 7JB>3;@76 4K F:7 7J;EF7@57 A8 BKD3?;63> AI@7DE:;B EFDG5 FGD7E I;F: :A>6;@9 5A?B3@;7E B>3K;@9 3 E;9@;M53@F DA>7 ;@ F:7 M@3@5;@9 3@6 ;@ F:7 ?3@397?7@F A8 F:7;D 3S>;3F76 MD?E :7@57 >AI7D;@9 F:7 7JF7D@3> M@3@57 BD7?;G?
,:7 D7>3F;A@E:;B 5:3@@7> 53@@AF 7JB>3;@ I:K !F3>K E:AIE 3 5A?B3D3F;H7>K :;9: ;@H7EF?7@F E7@E;F;H;FK FA 5:3@97E ;@ M@3@5;3> BAE;F;A@ !F 5AG>6 47 B3DF>K D7>3F76 F:AG9: FA F:7 835F F:3F 3 :;9: B7D57@F397 A8 >A3@E ;E 435=76 4K 5A>>3F7D3> I:;5: ?;9:F D7EG>F ;@ 3 ?AD7 3557@FG3F76 ;?B35F A8 F:7 43>3@57 E:77F 5:3@@7> E;@57 F:7 @793F;H7 ;?B35F A@ 3EE7F BD;57E 3@6 :7@57 A@ 5A>>3F7D3> H3>G7E A8 ?A@7F3DK BA>;5K 5A@FD35F;A@E ?;9:F :3H7 3 ?AD7 E;9@;M53@F ;?B35F A@ 5D76;F
3H3;>34;>;FK @ 366;F;A@3> 835FAD F:3F 53@ 5A@FD;4GF7 FA F:7 :;9: E7@E;F;H;FK 7EF;?3F76 8AD
!F3>K ;E F:7 5A?B3D3F;H7>K I73=7D M@3@5;3> BAE;F;A@ A4E7DH76 8AD MD?E ;@ F:;E 5AG@FDK ;8 3 @A@ >;@73D ;?B35F A8 M@3@5;3> BAE;F;A@ A@ ;@H7EF?7@F 7J;EFE 7E5D;BF;H7 7H;67@57 E:AI@ ;@ +75F;A@
?;9:F BA;@F ;@ F:;E 6;D75F;A@ 7EB75;3>>K 8AD F:7 674F 4GD67@ ;@6;53FAD
#" (" %!%&
/7 :3H7 3@3>KE76 F:7 E7@E;F;H;FK A8 ;@H7EF?7@F FA 5:3@97E ;@ M@3@5;3> BD7EEGD7 83576 4K MD?E I;F: 3 >3D97 E3?B>7 A8 MD?E ;@ E;J 7GDA 3D73 5AG@FD;7E 7>9;G? 7D?3@K D3@57 !F3>K F:7 &7F:7D>3@6E 3@6 +B3;@ I:;5: 4DA36>K D7BD7E7@F A8 ( ;@ F:7 7GDA 3D73 ;@3@5;3> BD7EEGD7 :3E 477@ BDAJ;76 4K MD? ;@674F76@7EE 674F 4GD67@ 3@6 BDAMF34;>;FK '@7 BAE;F;H7 5:3D35F7D;EF;5 A8 F:7 63F343E7 GE76 8AD F:7 3@3>KE;E ;E F:3F F:7 B7D57@F397 A8 E?3>>7D MD?E ;@ F:7E7 E3?B>7E F:3F 3D7 F:AE7 7JB75F76 FA 47 ?AD7 3T75F76 4K 3EK??7FD;5 ;@8AD?3F;A@ BDA4>7?E 3@6 3E 3 D7EG>F 4K M@3@5;3> 5A@EFD3;@FE ;E ?G5: :;9:7D F:3@ ;@ BD7H;AGE EFG6;7E
>> ;@ 3>> AGD D7EG>FE ;@6;53F7 F:3F MD?EO M@3@5;3> BAE;F;A@ 5A@6;F;A@E F:7;D 53B;F3> 7J B7@6;FGD7E 3E M@3@5;3> BAE;F;A@ 7@F7DE E;9@;M53@F>K F:7 ;@H7EF?7@F 7CG3F;A@ I:7@ ;F ;E BDAJ;76 4K 53E: NAI ;@674F76@7EE 3@6 674F 4GD67@ ,:7 D7EG>FE E:AI 6;T7D7@57E ;@ F:7 ;@H7EF?7@F ,:;E 5AG@FDK 3BB73DE FA E:AI F:7 :;9:7EF ;@H7EF?7@F E7@E;F;H;FK FA 5:3@97E ;@ ;@674F76@7EE 3@6 674F 4GD67@ I:;>7 8AD 53E: NAI F:;E 5AG@FDK IAG>6 D3@97 ;@ F:7 ?;66>7 ;@ 3 ?AD7 :A?A97@7AGE E3?B>7 I;F: A@>K ?3@ G835FGD;@9 MD?E F:7 E7@E;F;H;FK IAG>6 47 ;@ F:7 GBB7D D3@97 3>EA 8AD F:7 53E: NAI ;@6;53FAD +77 BB7@6;J
+77 :D?3@@ 8AD 3@ 3@3>KE;E A8 F:7 EFDG5FGD7 A8 F:7 43@=;@9 3@6 F:7 M@3@5;3> ?3D=7FE 35DAEE 7GDA 3D73 5AG@FD;7E 3@6 ;FE ;?B35F A@ F:7 DA>7 A8 43@=E ;@ F:7 ?A@7F3DK BA>;5K FD3@E?;EE;A@
>EA 3E ?7@F;A@76 34AH7 7D@3@6A 3@6 %3DF;@7L3DD3E53> F7EF F:;E :KBAF:7E;E 3@6 M@6 7H;67@57 A8 @A@>;@73D;F;7E ;@ F:7 ;?B35F A8 M@3@5;3> BAE;F;A@ A@ ;@H7EF?7@F 8AD +B3@;E: @A@M@3@5;3> 5ADBAD3F;A@E
E7@E;F;H;F;7E 35DAEE 5AG@FD;7E AD ;@EF3@57 MD?E ;@ 7D?3@K 3D7 8AG@6 FA 47 F:7 A@7E I;F: F:7 >AI7EF ?3D9;@3> ;?B35F A8 M@3@5;3> BD7EEGD7 A@ ;@H7EF?7@F D3F7E I:;>7 F:7 :;9:7EF ;?B35F :3E 477@ 8AG@6 8AD GF5: 3@6 !F3>;3@ MD?E
/7 :3H7 3>EA ;@H7EF;93F76 ;8 F:7 6;T7D7@57E ;@ E7@E;F;H;FK 8AG@6 35DAEE 5AG@FD;7E 53@ 47 6G7 FA 6;T7D7@57E ;@ F:7 E3?B>7 5A?BAE;F;A@ 3@6 ?AD7 EB75;M53>>K FA E75FAD3> AD E;L7 5A?BAE;F;A@ 6;T7D7@57E ,:7 D7EG>FE 6A @AF BA;@F ;@ F:;E 6;D75F;A@ E;@57 @A E;9@;M53@F 6;T7D7@57E :3H7 477@ 8AG@6 ;@ ;@H7EF?7@F D3F7 D7EBA@E;H7@7EE FA 5:3@97E ;@ M@3@5;3> BD7EEGD7 8AD 6;T7D7@F E;L7 9DAGBE &7;F:7D EKEF7?3F;5 E75FAD3> 6;T7D7@57E ;@ F:;E E7@E;F;H;FK :3H7 477@ 8AG@6
,:7 3@3>KE;E :3E 3>EA 9;H7@ 3@ ;@E;9:F A@ :AI 4K 3>F7D;@9 F:7 M@3@5;3> BD7EEGD7 7JB7 D;7@576 4K MD?E ;@ E7DH;5;@9 F:7;D 674F ?A@7F3DK BA>;5K ?3K AB7D3F7 F:DAG9: F:7 5ADBAD3F7 E75FAD !F :3E 477@ ;>>GEFD3F76 :AI F:7 :7F7DA97@7;FK 4AF: ;@ F:7 ?39@;FG67 A8 F:7 ?3D9;@3> ;? B35F A8 674F 4GD67@ A@ ;@H7EF?7@F D3F7E 3@6 ;@ F:7 >7H7> A8 ;@674F76@7EE ;E ;?BADF3@F FA 7H3>G3F7 BAF7@F;3> 3EK??7FD;7E A@ F:7 ;?B35F A8 5:3@97E ;@ ?A@7F3DK BA>;5K A@ ;@H7EF?7@F D3F7E
Table 1. Summary statistics
Belgium France Germany Italy the Netherlands Spain I/K investment rate mean 0.150 0.170 0.123 0.176 0.156 0.172 median 0.113 0.116 0.093 0.132 0.129 0.118
ǻy sales growth mean 0.015 0.023 0.017 0.000 0.019 0.030 median 0.020 0.023 0.018 0.008 0.018 0.029
(D-L)/A net indebtedness mean 0.517 0.433 0.563 0.623 0.512 0.475 median 0.529 0.449 0.551 0.661 0.528 0.499
db interest debt burden mean 0.198 0.183 0.291 0.318 0.186 0.267 median 0.115 0.093 0.176 0.222 0.120 0.176
CF/A profitability mean 0.073 0.089 0.069 0.054 0.097 0.083 median 0.065 0.078 0.067 0.042 0.090 0.071
Number of firms 3425 43880 532 27607 658 45880
Number of observations 26504 332082 3637 205406 4974 336001 Quoted firms in % of total firms 0.6 0.3 11.8 0.1 7.9 0.1 SMEs in % of total firms 86.6 96.2 35.7 96.8 35.1 98.2 Sectors (% firms)
Construction 8.4 11.1 6.2 6.1 5.6 12.2
Manufacturing 34.3 24.2 22.0 46.4 35.0 31.5
Services 15.4 24.9 30.5 9.0 10.8 17.8
Trade 33.2 34.1 11.8 33.5 36.8 31.8
Electricity, gas, water supply, 8.7 5.8 29.5 5.0 11.9 6.8 transport, storage and
Table 2. Baseline specification
coeff std error coeff std error coeff std error coeff std error coeff std error coeff std error (I/K)it-1 0.168 0.127 -0.116 0.118 0.357 0.162** -0.065 0.170 0.041 0.128 0.203 0.148 (∆y)it 0.072 0.064 0.095 0.060 0.311 0.149** 0.430 0.126*** 0.078 0.088 0.100 0.086 (∆y)it-1 0.078 0.035** 0.091 0.034*** 0.146 0.189 -0.107 0.132 0.178 0.060*** 0.192 0.122 (k-y)it-1 -0.069 0.030** -0.060 0.026** -0.078 0.050 -0.099 0.055* -0.148 0.055*** -0.072 0.033** M1 M2 Sargan 0.00 0.17 0.64 0.00 0.05 0.10
Notes: All equations include time and sectoral dummies.Estimated coefficients and asymptotic robust standard errors reported. Estimation by GMM-SYSTEM estimator using the robust one-step method (Blundell and Bond, 1998; Arellano and Bond, 1998). Sargan is a Sargan Test of over-identifying restrictions (p-value reported). Mjis a test of jth-order serial
correlation in the first-differenced residuals (p-values reported). Instruments: in first-differences equation, following lagged values of the regressors: Belgium: (I/K) (t-5, t-6),ǻy (t-2 to t-4) (k-y) (t-4 to t-6); Germany: (I/K) (t-4),ǻy (t-2 to t-4) (k-y) (t-3 to t-5); France: (I/K) (t-6 to t-7),ǻy (t-6) (k-y) (t-5 to t-6); Italy: (I/K) (t-7),ǻy (t-6, t-7) (k-y) (t-5 to t-6); Netherlands: (I/K) (t-4, t-5),ǻy (t-2 to t-4) (k-y) (t-3 to t-4); Spain (I/K) (t-7),ǻy (t-6) (k-y) (t-6 to t-7). In levels equations, first differences of the regressors dated as follows: Belgium:ǻy (t-3); Germanyǻy (t-4); Franceǻy (t-5); Italyǻy (t-5); Netherlands:ǻy (t-4); Spain:ǻy (t-5).*,**,*** indicate significance at 10%,5% and 1% significance level, respectively. 0.16 0.80 0.00 0.00 0.23 0.07 0.00 0.17 0.15 0.00 0.30 0.738
Italy Netherlands Spain Belgium Germany France
Table 3. Baseline specification plus cash flow ratio (CF/A)
coeff std error coeff std error coeff std error coeff std error coeff std error coeff std error (I/K)it-1 0.180 0.127 -0.141 0.102 0.142 0.142 -0.105 0.171 0.112 0.099 0.265 0.140* (∆y)it 0.005 0.056 0.046 0.059 0.357 0.097*** 0.470 0.099*** 0.100 0.077 0.120 0.089 (∆y)it-1 0.037 0.027 0.063 0.031** 0.162 0.113 -0.143 0.124 0.105 0.040*** 0.237 0.093** (k-y)it-1 -0.044 0.021** -0.043 0.021** -0.112 0.048** -0.061 0.039 -0.090 0.032*** -0.041 0.023* (CF/A)it-1 0.487 0.174*** 0.275 0.160* 0.541 0.175*** 0.599 0.338** 0.373 0.209* 0.327 0.159** M1 M2 Sargan France Germany Spain 0.00 0.23 0.00 0.12 0.00 0.00 0.00 Netherlands Italy 0.00 0.15 0.77 Belgium 0.16
Notes: All equations include time and sectoral dummies. Estimated coefficients and asymptotic robust standard errors reported. Estimation by GMM-SYSTEM estimator using the robust one-step method (Blundell and Bond, 1998; Arellano and Bond, 1998). Sargan is a Sargan Test of over-identifying restrictions (p-value reported). Mjis a test of jth-order serial
correlation in the first-differenced residuals (p-values reported). Instruments: in first-differences equation, following lagged values of the regressors: Belgium: I/K (t-5, t-6),ǻy (2 to t-4), (k-y) (t-4 to t-6), CF/A (t-4, t-5); Germany: I/K (t-t-4),ǻy (t-2 to t-4) (k-y) (t-3 to t-5) CF/A (t-4 to t-6); France: I/K (t-6 to t-7),ǻy 6), (k-y) 5 to t-6), CF/A 4, t-5); Italy: I/K (t-7),ǻy (t-6, t-7), (k-y) (t-5 to t-6); Netherlands: I/K (t-4, t-5),ǻy (t-2 to t-4), (k-y) (t-3 to t-4) CF/A (t-4, t-5); Spain I/K (t-7),ǻy (t-6), (k-y) (t-6 to t-7), CF/A (t-5). In levels equations, first differences of the regressors dated as follows: Belgium:ǻy (t-3) and CF/A (t-5); Germanyǻy (t-4), CF/A (t-4); Franceǻy (t-5); Italyǻy (t-5), CF/A (t-3); Netherlands:ǻy (t-4), CF/A (t-3); Spain: ǻy (t-5), CF/A (t-3). *,**,*** indicate significance at 10%,5% and 1% significance level, respectively.
0.14 0.65 0.37 0.18 0.09 0.32 0.12
Table 4. Baseline specification plus indebtedness ratio ((D-L)/A)
coeff std error coeff std error coeff std error coeff std error coeff std error coeff std error (I/K)it-1 0.172 0.095* -0.139 0.108 0.159 0.123 0.049 0.121 0.030 0.091 0.203 0.140 (∆y)it 0.087 0.052 * 0.100 0.052* 0.489 0.125*** 0.536 0.076*** 0.158 0.077** 0.114 0.081 (∆y)it-1 0.081 0.025*** 0.096 0.033*** 0.337 0.150** -0.184 0.128 0.143 0.036*** 0.179 0.110 (k-y)it-1 -0.070 0.020*** -0.060 0.026** -0.049 0.016*** -0.059 0.016*** -0.096 0.028*** -0.074 0.029** ((D-L)/A)it-1 -0.055 0.031 * -0.022 0.115 -0.058 0.021*** -0.075 0.036** -0.109 0.081 -0.055 0.025** M1 M2 Sargan France Germany Spain 0.00 0.07 0.00 0.73 0.00 0.00 0.00 Netherlands Italy 0.00 0.22 0.87 Belgium 0.12
Notes:All equations include time and sectoral dummies. Estimated coefficients and asymptotic robust standard errors reported. Estimation by GMM-SYSTEM estimator using the robust one-step method (Blundell and Bond, 1998; Arellano and Bond, 1998). Sargan is a Sargan Test of over-identifying restrictions (p-value reported). Mjis a test of jth-order serial
correlation in the first-differenced residuals (p-values reported). Instruments: in first-differences equation, following lagged values of the regressors: Belgium: I/K (t-5, t-6),ǻy (2 to t-4), (k-y) (t-4 to t-6), (D-L)/A (t-3 to t-5); Germany: I/K (t-t-4),ǻy (t-2 to t-4), (k-y) (t-3 to t-5), (D-L)/A (t-3 to t-5); France: I/K (t-6, t-7),ǻy (t-6), (k-y) (t-5, t-6), (D-L)/A (t-4, t-5); Italy: I/K (t-7),ǻy (t-6, t-7), (k-y) (t-5, t-6) (D-L)/A (t-5); Netherlands: I/K (t-4, t-5),ǻy (t-2 to t-4), (k-y) (t-3, t-4), (D-L)/A (t-3 to t-5); Spain I/K (t-7),ǻy (t-6), (k-y) (t-6, t-7). In levels
0.133 0.89 0.05 0.30 0.353 0.39 0.056
Table 5. Baseline specification plus debt burden ratio (db)
coeff std error coeff std error coeff std error coeff std error coeff std error coeff std error (I/K)it-1 0.155 0.106 -0.108 0.111 0.176 0.097* -0.198 0.122 -0.055 0.056 0.261 0.125** (∆y)it 0.073 0.055 0.078 0.053 0.398 0.128*** 0.299 0.080*** 0.094 0.079 0.093 0.060 (∆y)it-1 0.081 0.033** 0.057 0.029** 0.237 0.107** -0.088 0.082 0.165 0.044*** 0.093 0.063 (k-y)it-1 -0.076 0.029*** -0.030 0.017* -0.077 0.037** -0.123 0.034*** -0.115 0.041*** -0.030 0.022 (db)it-1 -0.067 0.037* -0.061 0.041 -0.068 0.038* -0.121 0.064* -0.165 0.079** -0.069 0.035* M1 M2 Sargan
Notes:All equations include time and sectoral dummies. Estimated coefficients and asymptotic robust standard errors reported. Estimation by GMM-SYSTEM estimator using the robust one-step method (Blundell and Bond, 1998; Arellano and Bond, 1998). Sargan is a Sargan Test of over-identifying restrictions (p-value reported). Mjis a test of jth-order serial
correlation in the first-differenced residuals (p-values reported). Instruments: in first-differences equation, following lagged values of the regressors: Belgium: (I/K) (t-5, t-6),ǻy (t-2 to t-4) (k-y) (t-4 to t-6), db (t-3 to t-5); Germany: (I/K) (t-4),ǻy (t-2 to t-4) (k-y) (-3 to t-5), db (t-5); France: (I/K) (t-6 to t-7),ǻy (t-6) (k-y) (t-5 to t-6); Italy: (I/K) (t-7),ǻy (t-6, t-7) (k-y) (t-5 to t-6), db(t-6); Netherlands: (I/K) (t-4, t-5),ǻy (t-2 to t-4) (k-y) (t-3 to t-4) db (t-3 to t-5); Spain (I/K) (t-7),ǻy (t-6) (k-y) (t-6 to t-7), db (t-6 to t-7). In levels equations, first differences of the regressors dated as follows: Belgium:ǻy (t-3), (D-L)/A (t-4); Germanyǻy (t-4) and db (t-2); Franceǻy (t-5), db (t-2); Italyǻy and db (t-5); Netherlands:ǻy and db (t-4); Spain: ǻy and db (t-2).*,**,*** indicate significance at 10%,5% and 1% significance level, respectively.
0.04 0.71 0.00 0.00 0.63 0.01 0.00 0.73 0.42 Spain 0.00 0.11 0.36 0.00 0.20 0.47 0.00 0.15 0.20
Belgium Germany France Italy Netherlands
Table 6. Impact of financial variables on investment. Differential impact for small and medium-size firms
coeff std error coeff std error coeff std error coeff std error coeff std error coeff std error Profitability 0.210 0.214 *** 0.516 0.215 ** 0.791 0.234 *** 0.306 0.343 0.698 0.229 *** 0.128 0.120 Diff. SMEs 0.332 0.201 * -0.461 0.288 -0.298 0.249 0.172 0.323 -0.475 0.247 * 0.169 0.118 Indebtedness -0.021 0.039 -0.069 0.126 -0.042 0.036 -0.065 0.031 ** -0.124 0.085 -0.059 0.061 Diff. SMEs -0.050 0.038 0.071 0.066 0.021 0.042 0.000 0.056 -0.043 0.079 0.022 0.057 Debt burden -0.003 0.048 -0.054 0.037 -0.056 0.051 -0.009 0.087 -0.118 0.081 -0.072 0.058 Diff. SMEs -0.094 0.052 * -0.013 0.058 -0.025 0.052 -0.119 0.085 0.039 0.099 0.009 0.056 Belgium
Note: Diff. SMEs captures, for each financial ratio, the differential impact of that ratio on investment rates for SMEs. *,**,*** indicate significance at 10%,5% and 1% significance level, respectively. Spain Netherlands Italy France Germany
Table 7. Impact of financial variables on investment, allowing different impact for different sectors
coeff std error coeff std error coeff std error coeff std error coeff std error coeff std error Profitability 0.453 0.156 *** 0.190 0.147 0.696 0.116 *** 0.800 0.229 *** 0.473 0.179 *** 0.452 0.116 *** Diff. sector 2 -0.072 0.079 0.075 0.070 0.225 0.060 *** 0.017 0.088 0.008 0.131 0.130 0.046 *** Diff. sector 3 -0.008 0.104 0.113 0.380 0.252 0.035 *** 0.223 0.124 * 0.021 0.230 0.119 0.040 *** Diff. sector 4 0.089 0.050 * 0.032 0.044 0.080 0.044 * 0.032 0.068 0.131 0.130 0.033 0.030 Diff. sector 5 -0.089 0.056 0.039 0.185 0.042 0.045 0.034 0.048 -0.165 0.104 0.008 0.026 Indebtedness 0.180 0.156 *** -0.330 0.147 -0.769 0.608 -0.039 0.229 *** -0.085 0.122 -0.015 0.116 *** Diff. sector 2 -1.513 0.079 0.294 0.070 1.557 1.739 -0.012 0.088 -0.007 0.165 0.096 0.046 *** Diff. sector 3 0.004 0.104 0.368 0.380 1.974 1.196 * 0.192 0.124 * 0.067 0.262 0.033 0.040 *** Diff. sector 4 0.057 0.050 * 0.334 0.044 1.086 0.671 -0.047 0.068 0.199 0.166 -0.006 0.030 Diff. sector 5 -0.527 0.056 0.206 0.185 0.823 0.850 -0.026 0.048 -0.164 0.140 -0.041 0.026 Debt burden -0.064 0.047 0.027 0.052 -0.111 0.035 *** -0.140 0.064 ** -0.109 0.052 ** -0.082 0.024 *** Diff. sector 2 -0.164 0.125 0.021 0.067 0.290 0.060 *** -0.176 0.116 -0.044 0.127 0.131 0.044 *** Diff. sector 3 -0.063 0.134 0.112 0.371 0.210 0.029 *** -0.284 0.154 * 0.002 0.239 0.085 0.036 ** Diff. sector 4 -0.200 0.234 -0.005 0.047 0.089 0.036 ** 0.092 0.067 0.135 0.123 0.022 0.028 Diff. sector 5 -0.165 0.080 -0.005 0.185 0.013 0.036 -0.010 0.073 -0.178 0.104 * -0.015 0.022 France Belgium
Note: Diff. sector j captures, for each financial ratio, the differential impact of that ratio on investment rates for sector j. Manufacturing sector is the reference sector (sector 1). Sector 2 includes firms in the electricity gas, water supply, transport, storage and communication sectors. Sector 3, 4 and 5 includes companies in the construction, services and trade sectors, respectively.*,**,*** indicate significance at 10%,5% and 1% significance level, respectively.
Charts 1-5: Selected variables over time
Chart 1: Investment rate
Chart 2: Real sales (annual rate of growth)
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2 1997 1998 1999 2000 2001 2002 2003 2004 2005 Belgium France Germany Italy the Netherlands Spain
-0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.08 0.1 1997 1998 1999 2000 2001 2002 2003 2004 2005 Belgium France Germany Italy the Netherlands Spain
Source: Amadeus, Bureau van Dijk and own calculations Source: Amadeus, Bureau van Dijk and own calculations
Chart 3: Profitability
Chart 4: Net indebtedness
0.02 0.04 0.06 0.08 0.1 0.12 1997 1998 1999 2000 2001 2002 2003 2004 2005 Belgium France Germany Italy the Netherlands Spain
0.3 0.4 0.5 0.6 0.7 0.8 1997 1998 1999 2000 2001 2002 2003 2004 2005 Belgium France Germany Italy the Netherlands Spain
Source: Amadeus, Bureau van Dijk and own calculations Source: Amadeus, Bureau van Dijk and own calculations
Chart 5: Interest debt burden
0 0.1 0.2 0.3 0.4 1997 1998 1999 2000 2001 2002 2003 2004 2005 Belgium France Germany Italy the Netherlands Spain
Charts 6-8: Relationship between financial position and investment level
Chart 6: Cash flow and level of investment
Belgium France 0.00 0.05 0.10 0.15 0.20 0.25 0.30 1997 1998 1999 2000 2001 2002 2003 2004 2005 In v e st m e nt R a te
high cash flow medium cash flow low cash flow
0.00 0.05 0.10 0.15 0.20 0.25 0.30 1997 1998 1999 2000 2001 2002 2003 2004 2005 In v e st m e n t R a te
high cash flow medium cash flow low cash flow
Germany Netherlands 0.00 0.05 0.10 0.15 0.20 0.25 0.30 1997 1998 1999 2000 2001 2002 2003 2004 2005 In v e st m e nt R a te
high cash flow medium cash flow low cash flow
0.00 0.05 0.10 0.15 0.20 0.25 0.30 1997 1998 1999 2000 2001 2002 2003 2004 2005 Inv e st m e nt R a te
high cash flow medium cash flow low cash flow
Italy Spain 0.00 0.05 0.10 0.15 0.20 0.25 0.30 1997 1998 1999 2000 2001 2002 2003 2004 2005 Inv e st m e nt R a te
high cash flow medium cash flow low cash flow
0.00 0.05 0.10 0.15 0.20 0.25 0.30 1997 1998 1999 2000 2001 2002 2003 2004 2005 In v e st m e n t R a te
high cash flow medium cash flow low cash flow
Source: Amadeus, Bureau van Dijk and own calculations
Note: The different panels present the median investment rate in each country for firms with high cash flow (above the 90th percentile), medium cash flow (firms for which this ratio stands between the 45th and the 55th percentile) and low cash flow (lower decile). The investment rate is defined as the ratio of gross fixed capital formation over capital stock, while cash flow is normalized by total assets.
Chart 7: Indebtedness and level of investment
Belgium France 0.00 0.05 0.10 0.15 0.20 0.25 1997 1998 1999 2000 2001 2002 2003 2004 2005 In v e st m e n t R a tehigh indebtnes s ratio medium indebtness ratio low indebtness ratio
0.00 0.05 0.10 0.15 0.20 0.25 1997 1998 1999 2000 2001 2002 2003 2004 2005 In v e st m e n t Ra te
high indebtness ratio medium indebtnes s ratio low indebtnes s ratio
Germany Netherlands 0.00 0.05 0.10 0.15 0.20 0.25 1997 1998 1999 2000 2001 2002 2003 2004 2005 Inv e st m e n t R a te
high indebtnes s ratio medium indebtnes s ratio low indebtnes s ratio
0.00 0.05 0.10 0.15 0.20 0.25 1997 1998 1999 2000 2001 2002 2003 2004 2005 In v e st m e n t Ra te
high indebtnes s ratio m
