The effects of financial frictions on Slovenian companies : a panel VAR approach

Zabavnik, Darja (author), Verbič, Miroslav (author)

In this paper, we investigate the impact of imperfect financial markets on the business investment of Slovenian non-financial companies. We focus on exploring the borrower’s balance sheet channel, through which companies' worsening balance sheets, reduce the availability of external finance. The effects of exogenous shocks are, therefore, amplified through the financial accelerator mechanism and affect the overall economy. Using data from annual reports of Slovenian non-financial companies from 2005 to 2020, we estimate a panel VAR model on various sample definitions. The results confirm the existence of the balance sheet channel, as the impulse response of investment to cash flow shocks is statistically significant. This effect is especially noticeable during the period from 2006 to 2012. Our findings suggest that financial frictions affect the availability of external financing and, consequently, the investment activity of Slovenian non-financial companies. Policymakers should prioritize measures to ensure adequate external financing, particularly for financially constrained firms, to mitigate the negative impact of reduced economic activity during periods of financial distress and economic downturns.

• Language: English
• Keywords: enterprises, investments, economic forecasting, models, balance sheet channel, financial frictions, business investment, transmission channels, panel VAR approach
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2023
• Number of pages: 16 str.
• Numbering: Vol. 58, pt. C, art. 104563
• PID: 20.500.12556/RUL-152935
• UDC: 336
• ISSN on article: 1544-6123
• DOI: 10.1016/j.frl.2023.104563
• COBISS.SI-ID: 167898627
• Publication date in RUL: 12.12.2023

Record is a part of a journal

• Title: Finance research letters
• Publisher: Elsevier
• ISSN: 1544-6123
• COBISS.SI-ID: 518506777

Licences

• License: CC BY-NC-ND 4.0, Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
• Link: http://creativecommons.org/licenses/by-nc-nd/4.0/
• Description: The most restrictive Creative Commons license. This only allows people to download and share the work for no commercial gain and for no other purposes.

Secondary language

• Language: Slovenian
• Keywords: podjetje, investicije, modeli, ekonomska predvidevanja, modeli

Projects

• Funder: Other - Other funder or multiple funders
• Funding programme: Institute for Economic Research

• Funder: ARRS - Slovenian Research Agency
• Project number: P5-0096
• Name: Razvojna strategija Slovenije kot članice Evropske unije