Investment decisions of companies in financial distress

Carlos López Gutiérrez · Sergio Sanfilippo Azofra · Begoña Torre Olmo

85 citations0/0 files storedBRQ Business Research Quarterly

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Corporate Finance and Governance Corporate Insolvency and Governance Financial Distress and Bankruptcy Prediction

Abstract

This paper analyzes the influence of financial distress on the investment behavior of companies. The analysis includes companies from Germany, Canada, Spain, France, Italy, UK and USA, which cover a wide spectrum of different institutional environments. The methodology used is panel data estimation using the Generalized Method of Moments (System-GMM), thereby allowing control of both unobservable heterogeneity and the problems of endogeneity in explanatory variables. The results show that the influence of financial distress on investment is different according to the investment opportunities available to companies. So, companies in difficulties with fewer opportunities have the greatest propensity to under-invest, while firms in difficulties with better opportunities do not present different investment behavior than healthy companies.

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References

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