Series: Working Papers. 9506.
Author: Ángel Estrada and Javier Vallés.
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Abstract
This paper analyses the interrelatedness of investment and financial variables with a panel of Spanish manufacturing firms. The neoclassic model of investment is rejected due to its correlation with financial variables. Alternatively, an investment model in which there is a premium on the cost of external funds is accepted. This premium depends on the debt level and the asset structure of the firms and we estimate that it represents an average cost of 0.3 percentage points above the market interest rate. We obtain that recently established and small firms, because of their financial characteristics, have a higher premium cost, implying a discount rate between 0.5 and 1 percentage point below that on the remaining firms. Nevertheless, these additional costs are not significant at firms which distribute dividends in consecutive periods.