Diapositiva 1

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INTRODUCTION

• Financial position of the corporate sector may
  influence the performance of the real economy and
  the stability of the financial system
• In its turn, the financial position of the
  corporate sector is relevant to determine the
  magnitude of the effects of monetary policy
  shocks
• Adjustment by companies as a result of monetary
  policy shift can potentially involve a wide range
  of activities, but their response might depend on
  the degree of financial pressure they face
• Distribution of financial position matters.
  Financial fragility of certain firms are not
  offset by soundness of others. The effect of
  aggregate financial indicators on business
  activity in estimates at macro level has been
  elusive.
• Aim of this paper describing aspects of the
  financial situation of the corporate sector in
  Spain and analyzing how companies adjust
  investment and employment to variations in
  financial pressure

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KEY ISSUES OF THE PAPER

• Overall picture of the financial position of
  Spanish non-financial firms
• - Substantial cross-sectional dispersion in
  terms of the degree of financial tightness
• II. The impact of financial position on business
  activity.
• - Financial position, proxied by alternative
  financial variables, matters for business
  activity
• III. Shape of the relationship
• - The impact is non-linear and becomes more
  intense when financial pressure exceeds a certain
  threshold
• IV. Construction of composite indicators for the
  impact of corporate financial health on real
  decisions
• - Indicators based on aggregate data may not be
  reliable enough to capture the impact of
  corporate financial health on real decisions

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I. DESCRIPTIVE ANALYSIS OF FIRMS FINANCIAL
POSITION (I)

• Data Unbalanced panel of around 9,000
  non-financial companies over the 1985-2001 period
  (Central Balance Sheet Data Office)
• Financial variables considered
• Indebtedness
• Corporate profitability
• Debt burden

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I. DESCRIPTIVE ANALYSIS OF FIRMS FINANCIAL
POSITION (II)

• Substantial cross-sectional variation in the
  distribution of Spanish firms for indebtedness,
  profitability and debt burden indicators

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I. DESCRIPTIVE ANALYSIS OF FIRMS FINANCIAL
POSITION (III)
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KEY ISSUES OF THE PAPER

• I. Overall picture of the financial position of
  Spanish non-financial companies. Cross-sectional
  dispersion
• II. The impact of financial position on business
  activity. Relative importance of alternative
  financial variables
• III. This impact is non-linear and becomes more
  intense when financial pressure exceeds a certain
  threshold
• IV. Construction of composite indicators for the
  impact of corporate financial health on real
  decisions

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II. THE IMPACT OF FINANCIAL POSITION ON
INVESTMENT AND EMPLOYMENT DECISIONS

• Estimation method System- GMM

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II. THE IMPACT OF FINANCIAL POSITION ON
INVESTMENT AND EMPLOYMENT DECISIONS. EMPIRICAL
RESULTS

• When included one at a time, all financial
  indicators are significant
• When simultaneously included, the indicators of
  debt-service burden are those that display a more
  robust effect
• Preferred specifications
• Investment total debt burden, gross revenue over
  total assets and net debt over total assets
• Employment total debt burden and gross revenue
  over total assets

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KEY ISSUES OF THE PAPER

• I. Overall picture of the financial position of
  Spanish non-financial companies. Cross-sectional
  dispersion
• II. The impact of financial position on business
  activity. Relative importance of alternative
  financial variables
• III. This impact is non-linear and becomes more
  intense when financial pressure exceeds a certain
  threshold
• IV. Construction of composite indicators for the
  impact of corporate financial health on real
  decisions

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III. a. NON-LINEAR LINK BETWEEN FINANCIAL
POSITION AND INVESTMENT. DESCRIPTIVE EVIDENCE
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III. b. NON-LINEAR LINK BETWEEN FINANCIAL
POSITION AND EMPLOYMENT. DESCRIPTIVE EVIDENCE
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III. c. NON-LINEAR LINK BETWEEN FINANCIAL
POSITION AND INVESTMENT. EMPIRICAL RESULTS
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KEY ISSUES OF THE PAPER

• I. Overall picture of the financial position of
  Spanish non-financial companies. Cross-sectional
  dispersion
• II. The impact of financial position on business
  activity. Relative importance of alternative
  financial variables
• III. This impact is non-linear and becomes more
  intense when financial pressure exceeds a certain
  threshold
• IV. Construction of composite indicators for the
  impact of corporate financial health on real
  decisions

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IV. COMPOSITE INDICATOR OF THE IMPACT OF
FINANCIAL CONDITIONS ON INVESTMENT AND EMPLOYMENT

• This indicator must take into account the
  following elements
• Cross-sectional dispersion in firms financial
  position
• Differences across firms in the sensitivity of
  their real decisions to their financial position
• Relative weight of each firm for the evolution of
  aggregate investment
• Our preferred non-linear specifications include
• total debt-burden, net debt and gross revenue
  (investment)
• total debt-burden and gross revenue (employment)

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IV. COMPOSITE INDICATOR OF THE IMPACT OF
FINANCIAL CONDITIONS ON INVESTMENT
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IV. COMPOSITE INDICATOR OF THE IMPACT OF
FINANCIAL CONDITIONS ON EMPLOYMENT
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V. USES OF COMPOSITE INDICATORS OF THE IMPACT OF
FINANCIAL CONDITIONS ON EMPLOYMENT AND INVESTMENT
(I)

• Regularly analyzed to assess investment prospects
• Updated using CBSO (annual and quarterly) data
• Annual CBSO data available with an approximate
  lag of 1 year.
• Quarterly CBSO data available with a lag of 1
  quarter
• The annual database contains approximately 8000
  firms per year. The quarterly database
  contains on average 900 firms per quarter
• Large companies have a predominant weight

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V. USES OF COMPOSITE INDICATORS OF THE IMPACT OF
FINANCIAL CONDITIONS ON EMPLOYMENT AND INVESTMENT
(I)

• Regularly analyzed to assess investment prospects

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V. USES OF COMPOSITE INDICATORS OF THE IMPACT OF
FINANCIAL CONDITIONS ON EMPLOYMENT AND INVESTMENT
(II)

• Explanatory power to explain aggregate productive
  investment growth rate, using the quarterly
  macroeconometric model of the Spanish economy
• The introduction of composite indicator results
  in a reduction of the non-explained component.
  The contribution of the rest of the variables
  remains broadly unchanged

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KEY FINDINGS

• Substantial cross-sectional dispersion in terms
  of the degree of financial tightness
• Financial position matters for business activity
• This link is non-linear and becomes more intense
  when financial pressure exceeds a certain
  threshold
• Indicators based on aggregate data are not
  reliable enough to capture the impact of
  corporate financial health on real decisions

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