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The role of banks in relaxing financial constraints: some evidence on the investment behavior of spanish firms

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  • García, Teresa
  • Ocaña Pérez de Tudela, Carlos

Abstract

There is a growing body of evidence in the literature suggesting that the financial healh of a finn is likely to affect its investment behavior. This sort of capital market imperfection is often attributed to information problems that typically arise when deht and equity are diffusely held and no individual investor has an incentive to monitor the firm. We find that the neoclassical il1\'estll1ent model cannot be rejected for a sample of Spanish finns with a close bank relationship while it is r~iected for the subsample made up with the remaining firms. An augmented model incorporating horrowing constraints yields the opposite results. These results suggest that banks may play a role in alleviating capital market imperfectios in Spain. A second finding is that the effects of borrowing constraints in the augmented model vary only with the firm's cash now, but not with the asset liquidity or the tirn:'s financial health.

Suggested Citation

  • García, Teresa & Ocaña Pérez de Tudela, Carlos, 1997. "The role of banks in relaxing financial constraints: some evidence on the investment behavior of spanish firms," DEE - Working Papers. Business Economics. WB 7030, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:7030
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    References listed on IDEAS

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    Cited by:

    1. Radislav Semenov, 2006. "Financial systems, financing constraints and investment: empirical analysis of OECD countries," Applied Economics, Taylor & Francis Journals, vol. 38(17), pages 1963-1974.

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