The sensitivity of business capital formation to its user cost plays a key role in the analysis of many economic issues. Although this elasticity has been the subject of an enormous number of studies, a consensus remains elusive. We develop an estimation strategy that filters panel data in an...

This paper proposes a new framework for studying the effects of monetary policy on business investment. Important ambiguities with the modeling of investment dynamics and interactions between real and financial decisions suggest modeling investment spending as a VAR. Based on a panel of...

The interpretation of the significant relation between business investment spending and cash flow has been controversial. A large body of research has found that investment/cash flow sensitivities are higher for financially constrained firms. This fundamental result underlying the finance...

Bank intermediated finance has been cited frequently as the preferred means for channeling funds from savers to firms. Germany is the prototypical economy where universal banks allegedly exert substantial influence over firms. Despite frequent assertions about the considerable power of German...

The Berle-Means problem - information and incentive asymmetries disrupting relations between knowledgeable managers and remote investors - has remained a durable issue engaging researchers since the 1930's. However, the Berle-Means paradigm - widely-dispersed, helpless investors facing strong,...

The transmission channels through which monetary policy affects business investment remain opaque. This paper examines the importance of the interest rate and credit channels on business fixed investment in Germany. We have at our disposal three uniquely rich data sets - a panel of financial...

By studying the gap between the discount rates used by executives and shareholders, we assess the extent to which governance problems distort firm behavior. The estimation strategy recovers discount rates used by executives from the pattern of their actual investment spending. Our empirical work...

This study provides some perspective on analyzing the effects of corporate taxation on capital formation.