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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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  • Črnigoj, Matjaž
  • Verbič, Miroslav

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.

Suggested Citation

  • Črnigoj, Matjaž & Verbič, Miroslav, 2014. "Financial constraints and corporate investments during the current financial and economic crisis: The credit crunch and investment decisions of Slovenian firms," Economic Systems, Elsevier, vol. 38(4), pages 502-517.
    • Handle: RePEc:eee:ecosys:v:38:y:2014:i:4:p:502-517
    DOI: 10.1016/j.ecosys.2014.03.004
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    3. Magalhaes, Manuela, 2020. "The impact of financial constraints on tradable and non-tradable R&D investments in Portugal," MPRA Paper 100348, University Library of Munich, Germany.
    4. Kai Chang & Ning Lu & Ze Sheng Li & Yi Ran Wang, 2021. "The combined impacts of fiscal and credit policies on green firm's investment opportunity: Evidences from Chinese firm‐level analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1822-1835, October.
    5. Brzeszczyński, Janusz & Gajdka, Jerzy & Kutan, Ali M., 2015. "Investor response to public news, sentiment and institutional trading in emerging markets: A review," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 338-352.
    6. Matjaž Črnigoj, 2016. "The Responsiveness of Corporate Investments to Changes in Corporate Income Taxation During the Financial Crisis: Empirical Evidence from Slovenian Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(9), pages 2165-2177, September.
    7. Rosario Aldunate, 2021. "Financial Constraints: a Propagation Mechanism of Foreign Shocks," Working Papers Central Bank of Chile 897, Central Bank of Chile.
    8. Bahadır Ergün & Ömer Tuğsal Doruk, 2020. "Effect of financial constraints on the growth of family and nonfamily firms in Turkey," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-24, December.

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