The Nexus between Bank Sources and Firms Capital Expenditures in SEE Countries

Abstract

Considering that financial sources and investment opportunities are the starting point of the business decision to invest, this research focuses on answering whether a country's financial system contributes to the growth of firm investment, with regard to the endogenous economic growth theory based on which the financial system affects economic growth through capital accumulation. To test the impact of external funds on the value of capital expenditures, the linear regression model is used, and the results support the hypothesis that bank loans have a positive impact on the value of new fixed assets. For robustness check, the logistic regression is utilized. In this model the dependent variable is dichotomous, considering the fact if the business in the respective year had purchased fixed assets or not, while as an explanatory variable, among others, are bank loans representing the fact if the business in the same period had a credit or not with any commercial bank. The results show a positive and significant connection between the bank loans and the newly purchased fixed assets. These findings imply that firm investments in SEE countries are not financially constrained from banks.