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Agency Costs, Credit Constraints and Corporate Investment

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  • Hansen, Sten

    (Uppsala University)

Abstract

The importance of credit market imperfections for investment behavior is analyzed using Swedish firm level data. Adjustment and agency costs are included in the neoclassical theory of optimal financial and investment decisions for firms. In order to model the possible occurrence of agency costs of debt, and credit constraints, the behavior of banks is reviewed in the light of the theory of imperfect information. The econometric results indicate that investments are a¤ected by both adjustment and agency costs, but not by credit constraints. Moreover, it is also shown that financial decisions are a¤ected by agency costs. Finally, there is evidence of credit constraints prior to financial deregulation, but not specifically for small or independent firms.

Suggested Citation

  • Hansen, Sten, 1999. "Agency Costs, Credit Constraints and Corporate Investment," Working Paper Series 79, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0079
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    References listed on IDEAS

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    1. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," Discussion Paper Series 26185, Hamburg Institute of International Economics.
    2. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," HWWA Discussion Papers 299, Hamburg Institute of International Economics (HWWA).

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    More about this item

    Keywords

    Credit constraints; Debt externalities; Expected marginal tax rate; Investment; Monitoring costs;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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