Asymmetric Effects of the Financial Crisis: Collateral-Based Investment-Cash Flow Sensitivity Analysis

April 1, 2012

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm's assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms' balance sheets. This paper deepens our understanding of firms' investment behavior.

Subject: Collateral, Currencies, Financial crises, Financial institutions, Financial statements, Global financial crisis of 2008-2009, Money, Public financial management (PFM)

Keywords: Asia and Pacific, Asymmetric Effects, Collateral, Currencies, Europe, Financial Crisis, Financial statements, firms balance sheets, firms draw, Global, Global financial crisis of 2008-2009, investment-cash flow sensitivity, representative firm, right, sensitivity coefficient, sensitivity model, WP

Pages:
28
Volume:
2012
DOI:
---
Issue:
097
Series:
Working Paper No. 2012/097
Stock No:
WPIEA2012097
ISBN:
9781475502879
ISSN:
1018-5941

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