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Firm Investment, Financial Constraints and Monetary Transmission: An Investigation with Czech Firm-Level Data

Author

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  • Oxana Babecka Kucharcukova
  • Renata Pasalicova

Abstract

This project investigates the effect of financial constraints and monetary policy on firms' investment behaviour using Czech firm-level data. The empirical specification is based on the dynamic neoclassical investment model, which explains investment by sales and cash flow. In addition, it includes financial constraints and other factors. We differentiate firms according to their size and type of economic activity. We find that indebtedness and availability of liquidity have significant effects on investment. In the post-crisis period firms obtained less additional credit due to greater riskiness and tended to accumulate more liquidity. Expectations about future GDP growth and business sentiment are positively related to investment. At the same time, we observe considerable heterogeneity of the results across sectors. The impact of the short-term real interest rate is highly significant for firms of all sizes and in all important sectors of the Czech economy, reflecting monetary policy effectiveness.

Suggested Citation

  • Oxana Babecka Kucharcukova & Renata Pasalicova, 2017. "Firm Investment, Financial Constraints and Monetary Transmission: An Investigation with Czech Firm-Level Data," Working Papers 2017/16, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2017/16
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial constraints; firms; indebtedness; investment; liquidity; monetary policy;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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