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Cycles and Corporate Investment: Direct Tests Using Survey Data on Banks’ Lending Practices

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  • Jakob B Madsen
  • Sarah J Carrington

Abstract

Microeconomic studies have found cash flow to be important for the investment decision and this result is often interpreted as is evidence of adverse selection in credit markets. Using direct survey evidence on banks’ willingness to lend, this research examines the role of credit in the investment decision while allowing for cash-flow, Tobin’s q, income, uncertainty and default risks. Regression analysis reveals that banks’ willingness to lend, income and uncertainty are the key drivers of cyclical fluctuations in corporate investment. These results have important implications for the conduct of monetary policy as well as research on business cycles.

Suggested Citation

  • Jakob B Madsen & Sarah J Carrington, 2011. "Cycles and Corporate Investment: Direct Tests Using Survey Data on Banks’ Lending Practices," Monash Economics Working Papers 18-11, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2011-18
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    References listed on IDEAS

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    Cited by:

    1. Madsen, Jakob B. & Carrington, Sarah J., 2012. "Credit cycles and corporate investment: Direct tests using survey data on banks’ lending practices," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 429-440.

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    More about this item

    Keywords

    credit constraints; corporate investment; Tobin’s q;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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