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    'Staff publications' is the digital repository of Wageningen University & Research

    'Staff publications' contains references to publications authored by Wageningen University staff from 1976 onward.

    Publications authored by the staff of the Research Institutes are available from 1995 onwards.

    Full text documents are added when available. The database is updated daily and currently holds about 240,000 items, of which 72,000 in open access.

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Record number 344290
Title Financial Variables in Investment Equations for Small Family-Owned Firms
Author(s) Ooms, D.L.
Source In: Book of Abstracts, NAKE Day, Tilburg, 21-10-2005. - Tilburg : NAKE - p. 38 - 39.
Event Tilburg : NAKE NAKE Day 2005, 2005-10-21/2005-10-21
Department(s) Agricultural Economics and Rural Policy
Publication type Abstract in scientific journal or proceedings
Publication year 2005
Abstract Small family owned firms can be restricted in their investments by financial constraints. These financial constraints are influenced by financial variables like e.g. solvability, liquidity and debt. Financial variables do not appear in investment equations derived from standard household production theory. Benjamin and Phimister (2002) try to solve this by explicitly modelling a constraint on debt in the household production model. Through this a shadow cost of debt variable appears in the investment equation, which is replaced by a function of cash flow and net worth. However, cash flow is highly correlated with production, total costs and investment costs which are also in the model. This can lead to multicollinearity problems in estimation. Moreover, we believe the relationship between cost of debt and cash flow is the other way around. Therefore, we incorporate a cost of debt function, depending on solvability, liquidity and debt, in the cash flow equation in staid of incorporating cash flow in the cost of debt equation. Maximising future cash flows within the household production model in this way leads to investment equations containing financial variables. As far as we know this is a new approach with limited restrictions.
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