Financial Constraints and Investment Efficiency: Internal Capital Allocation across the Business Cycle

2008 ◽  
Author(s):  
Gayané Hovakimian
Keyword(s):  
Business Cycle ◽  
Financial Constraints ◽  
Capital Allocation ◽  
Investment Efficiency ◽  
Internal Capital ◽  
The Business Cycle

scholarly journals Endogenous Liquidity and the Business Cycle

2015 ◽  
Vol 105 (6) ◽  
pp. 1883-1927 ◽  
Author(s):  
Saki Bigio
Keyword(s):  
Asymmetric Information ◽  
Business Cycle ◽  
Great Recession ◽  
Financial Constraints ◽  
Aggregate Fluctuations ◽  
The Great Recession ◽  
The Business Cycle ◽  
The Cost

I study an economy where asymmetric information about the quality of capital endogenously determines liquidity. Liquid funds are key to relaxing financial constraints on investment and employment. These funds are obtained by selling capital or using it as collateral. Liquidity is determined by balancing the costs of obtaining liquidity under asymmetric information against the benefits of relaxing financial constraints. Aggregate fluctuations follow increases in the dispersion of capital quality, which raise the cost of obtaining liquidity. An estimated version of the model can generate patterns for quantities and credit conditions similar to the Great Recession. (JEL D82, E22, E24, E32, E44, G01)

scholarly journals Does business cycle matter in bank-firm relationships to overcome under-over-investment?

2018 ◽  
Vol 13 (4) ◽  
pp. 153-160
Author(s):  
Aniek Hindrayani ◽  
Eduardus Tandelilin ◽  
Suad Husnan ◽  
I Wayan Nuka Lantara
Keyword(s):  
Business Cycle ◽  
Financial Constraints ◽  
Stock Exchange ◽  
Financial Statements ◽  
Free Cash Flow ◽  
Panel Regression ◽  
Internal Financing ◽  
The Business Cycle ◽  
Positive Effect

Considering that bank does not always perform its functions to overcome financial constraints and to monitor the company’s financial activities, this study aims to examine the role of bank-firm relationships in the effect of internal finance on investment based on the business cycle. The testing stages started with testing the effect of internal finance on investment, testing the role of bank-firm relationships in the effect of internal finance to investment, and testing the role of bank-firm relationships based on the business cycles. Non-financial companies listed on the Indonesia Stock Exchange make the sample of this study, while the data used are the financial statements for the period of 2002 – 2015 sourced from Osiris database. Hypotheses were tested using unbalanced panel regression. The results showed that internal finance has a positive effect on investment. The bank-firm relationships play a significant role in the effect of internal finance on the investment. In the growing companies, bank-firm relationships reduce underinvestment, and in mature companies, bank-firm relationships reduce overinvestment significantly. This study implies that banks run their role in helping to meet the needs of the internal financing. Companies with strong bank-firm relationships reduce the problem of underinvestment and asymmetric information. They also reduce the problem of overinvestment and agency of free cash flow. Banks perform their role in monitoring the financing activities of the mature companies.

Stock Returns and the Business Cycle

CFA Digest ◽  
2005 ◽  
Vol 35 (2) ◽  
pp. 42-43
Author(s):  
Daniel B. Cashion
Keyword(s):  
Business Cycle ◽  
Stock Returns ◽  
The Business Cycle

EXPANSIONS AND RECESSIONS IN THE MEXICAN STATES: A CLASSICAL BUSINESS CYCLES APPROACH

2017 ◽  
Vol 3 (5) ◽  
pp. 32
Author(s):  
Pablo Mejía-Reyes
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Monthly Basis ◽  
Production Index ◽  
Clear Cut ◽  
Output Measure ◽  
Central Regions ◽  
The Business Cycle ◽  
National Business ◽  
Cycle Indicator

This paper aims to document expansions and recessions characteristics for 17 states of Mexico over the period 1993-2006 by using a classical business cycle approach. We use the manufacturing production index for each state as the business cycle indicator since it is the only output measure available on a monthly basis. According to this approach, we analyse asymmetries in mean, volatility and duration as well as synchronisation over the business cycle regimes (expansions and recessions) for each case. Our results indicate that recessions are less persistent and more volatile (in general) than expansions in most Mexican states; yet, there is no clear cut evidence on mean asymmetries. In turn, there seems to be strong links between the business cycle regimes within the Northern and Central regions of the country and between states with similar industrialisation patterns, although it is difficult to claim that a national business cycle exists.

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