Financial constraints and corporate investments during the current financial and economic crisis: The credit crunch and investment decisions of Slovenian firms |
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| Affiliation: | 1. Institute for Economic Research, Kardeljeva ploščad 17, 1000 Ljubljana, Slovenia;2. Faculty of Economics, University of Ljubljana, Kardeljeva ploščad 17, 1000 Ljubljana, Slovenia;1. School of Public Economics & Administration, Shanghai University of Finance and Economics, Shanghai 200433, China;2. The World Bank, 1818 H Street NW, Washington, DC 20433, United States;1. Eastern Mediterranean University, Cyprus;2. Southern Illinois University Edwardsville, United States;1. Joint Vienna Institute, Mariahilfer Strasse 97, A-1060 Vienna, Austria;2. Czech National Bank, Na Příkopě 28, CZ-11503 Prague, Czech Republic;3. Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Opletalova 26, CZ-11000 Prague, Czech Republic;1. Universiti Utara Malaysia (UUM), Sintok, Kedah, Malaysia;2. Universiti Kebangsaan Malaysia (UKM), Bangi, Selangor, Malaysia;1. Institute of Economics, Zagreb, Trg J. F. Kennedya 7, 10000 Zagreb, Croatia;2. University of Ljubljana, Faculty of Economics, Kardeljeva ploščad 17, 1000 Ljubljana, Slovenia;1. Kent State University, OH, United States;2. Kyung Hee University, Seoul, Republic of Korea;3. University of Western Sydney, NSW, Australia |
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| Abstract: | ![]()
We investigate the effect of financial constraints on the investment decisions of Slovenian firms during the current financial and economic crisis. By estimating the error-correction model and the Euler-equation specification, we found that corporate investments were significantly affected by financial constraints during the crisis. The effect of financial constraints intensified in 2009 and alleviated slightly in 2010, although still being significantly more intense than before the crisis hit the economy. By estimating a switching regression model with unknown sample separation that enabled us to address the problem of judgemental sample separation, we were also able to estimate the error-correction model separately for financially constrained and financially unconstrained firms. The results indicate that financial constraints have a significant effect on both financially constrained and financially unconstrained firms, although corporate investments were more severely affected in financially constrained firms. |
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| Keywords: | Corporate investments Financial constraints Financial and economic crisis Error-correction model Euler-equation specification |
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