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Determinants of Business Fixed Investment: Evidence from German Firm-Level Data

Author

Listed:
  • Buettner Thiess
  • Hoenig Anja

    (Friedrich-Alexander-University (FAU), Lange Gasse 20, D-90403 Nuremberg, Germany)

Abstract

This paper employs a novel firm-level dataset that combines financial accounts of German firms with data from a business survey to shed new light on the demand for capital. The empirical analysis employs firm-specific indicators in order to explore the effects of sales, the cost of capital and indicators of the business climate, which are used by the ifo Institute to provide a leading indicator for the German economy. The empirical results support a robust significant effect of a firm’s cost of capital on the stock of capital with an elasticity not significantly different from –1. Controlling for sales, a good rather than normal business situation is found to be associated with about 8 % higher investment.

Suggested Citation

  • Buettner Thiess & Hoenig Anja, 2016. "Determinants of Business Fixed Investment: Evidence from German Firm-Level Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(5), pages 533-556, October.
    • Handle: RePEc:jns:jbstat:v:236:y:2016:i:1:p:533-556:n:4
    DOI: 10.1515/jbnst-2015-1027
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    References listed on IDEAS

    as
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    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. Stephen Bond & Jing Xing, 2010. "Corporate taxation and capital accumulation," Working Papers 1015, Oxford University Centre for Business Taxation.
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    More about this item

    Keywords

    investment; business climate; cost of capital; capital structure; firm-level data; survey data; neutrality of taxation;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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