Économie et Statistique n° 341-342 - Investment and Financing of Firms
The Slowdown in Investment is due mainly to small Service Enterprises
In the first half of the 1990s, corporate investment remained low and beneath the level forecast by the macroeconomic models. This deviation is due partly to highly diverse investment patterns by company size and business sector. The downturn in investment volumes in large companies and industry actually reflects the reduced share of these two categories of company in value-added. However, this general observation proves misleading when behaviour is studied at individual level. In addition to the influence of the real interest rate, other factors that can come into play at this level are the guarantees that companies unable to self-finance offer to credit bodies. This adds the mark-up and debt ratio to the interest rate as investment rate explanatory variables. This estimate is made distinguishing a growth phase (1985-1990) and a recession phase (1991-1996). These variables prove to be more decisive for small enterprises than large corporations. The financing variables (profit and debt ratios) play a greater role during a recession period, affecting mainly small business. The interest rate and the mark-up have a greater effect on services than industry. Conversely, debt affects solely industry in a growth phase. Lastly, regardless of the growth phase, investment by large corporations appears to depend on none of these variables. The small enterprises were more affected overall by the tightening of the monetary policy, since they do not have access to any financing methods other than bank loans.