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Demand, q, financial constraints and shareholder value revisited: an econometric micro-analysis of US fixed investment

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  • Christian Schoder

Abstract

Firm-level fixed investment expenses are analysed using a large panel of US manufacturing firms from 1971 to 2007. Integrating the user cost of capital, q and accelerator theories of investment to one econometric specification, we estimate the impacts of sales growth, cash flow, the cost of capital and Tobin's q on investment. Extending the baseline model, we further analyse the effects of financial leverage, the rise of shareholders' influence in corporate governance and an alternative to Tobin's q, the bond market's q, on investment. We find that sales growth, financial leverage and the bond market's q contribute substantially to predicting firm-level investment. Cash flow and Tobin's q are statistically significant but with low marginal effects. We find that the average firm's shareholder-value orientation does not affect its investment behaviour significantly.

Suggested Citation

  • Christian Schoder, 2014. "Demand, q, financial constraints and shareholder value revisited: an econometric micro-analysis of US fixed investment," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 7(1), pages 28-54.
    • Handle: RePEc:ids:ijecbr:v:7:y:2014:i:1:p:28-54
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    Cited by:

    1. Joel Rabinovich & Niall Reddy, 2024. "Corporate Financialization: A Conceptual Clarification and Critical Review of the Literature," Working Papers PKWP2402, Post Keynesian Economics Society (PKES).
    2. Schoder, Christian, 2013. "Credit vs. demand constraints: The determinants of US firm-level investment over the business cycles from 1977 to 2011," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 1-27.
    3. Schoder, Christian, 2014. "Instability, stationary utilization and effective demand: A structuralist model of endogenous cycles," Structural Change and Economic Dynamics, Elsevier, vol. 30(C), pages 10-29.
    4. William Milberg & Nina Shapiro, 2013. "Implications of the Recent Financial Crisis for Innovation," SCEPA working paper series. 2013-2, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.

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