Holdings of liquid assets, firm size and access to external financing : an analysis for the euro area

Artículo de revist

The recent strength of the labour market and its impact on workers’ consumption

Rationale Since the pandemic, the Spanish labour market has shown considerable strength, which has been conducive to a decline in the perceived probability of job loss among workers. This article evaluates the extent to which this may have had a positive impact on consumption (by reducing precautionary saving). Takeaways •The strength of the labour market and the rising share of permanent contracts have helped reduce workers’ perceived probability of job loss. This lowers precautionary saving and raises household spending levels •Uncertainty regarding future labour income has a particularly strong impact on spending on durable goods, and an albeit smaller impact on other non-essential expenditure. •The households whose spending on durables is most responsive to changes in uncertainty about future labour income are those that lack a minimum buffer of liquid assets to withstand a drop in income. This is observed most frequently among low-income and young households

The impact of the surge in inflation and the war on Spanish households’ economic outlook

Artículo de revistaThis article examines the impact that some recent events (specifically, the surge in inflation rates and the war in Ukraine) are having on Spanish households’ economic expectations, using information from the European Central Bank’s Consumer Expectations Survey. The analysis shows that the upward revision to household inflation expectations since mid-2021 has fed into their nominal spending expectations, which had been on an upward trajectory until the outbreak of the war. Indeed, the war has significantly impacted the expectations for the determinants of household spending: households now expect their income, their financial situation and the general economic situation to fare worse than before the war. Against a backdrop of greater projected price growth, the interruption of the upward trend observed in prior months of household expectations for an increase in nominal spending (with a downward adjustment, in particular, to the projected spending on durables) would entail weaker spending in real terms. In addition, the gap between the forecast growth of nominal spending and that of income has widened since early 2022. Accordingly, households appear to be implicitly anticipating slightly lower saving rates. The analysis also shows that, in response to higher nominal spending on energy consumed in the home, households with a modest liquidity buffer have reduced their spending on other goods. These households are mostly low-income ones which are also more exposed to changes in energy prices, given that the energy bill absorbs a greater proportion of their income. By contrast, households with a larger liquidity buffer have not significantly changed their levels of spending on other items, which they have funded by temporarily reducing their saving rates

Cash holdings, firm size and access to external finance : evidence for the Euro Area

This paper investigates the empirical determinants of corporate cash holdings in the euro area as a function of firm size. The results show that there are significant differences in investment in liquid assets for firms of different size. More specifically, liquid assets for smaller firms in the euro area are more strongly linked to firm cash flow and its variability than cash holdings for larger firms, possibly as a result of their more restricted access to external funds and the need to provide for future investment needs. Likewise, results show that the link between cash holdings and tangible assets, which facilitate access to external finance, is stronger for small and medium-sized firms than for large firms. In contrast, cash holding sensitivity to variations in the spread between the return on liquid assets and alternative uses of these funds (debt repayment, in the empirical specification presented in this paper) is higher for larger firms, something that might be linked to their better access to capital markets and their lower need to keep a cash buffer for precautionary reason

Box 5. Impact on recent and expected consumption patterns of the savings accumulated by households during the pandemic

Artículo de revistaThis early-release box was published on 12 Decembe

The impact of financial position on investment : an analysis for non-financial corporations in the euro-area

Incluye bibliografíaThis paper analyses the impact that firms' financial position has on investment decisions using panel data from a large sample of non-financial corporations (around 120,000 firms) in six euro area countries (Belgium, Germany, France, Italy, the Netherlands and Spain). The results indicate that financial position is important to explain capital expenditures, as financial pressure appears relevant in explaining investment dynamics when it is proxied by cash flow, indebtedness and debt burden. The results also show differences in the sensitivity of investment rates to changes in financial pressure across countries, which appears to be especially large in the Netherlands and Italy and relatively small in German

The interaction between house prices and loans for house purchase : the Spanish case

Incluye bibliografía y anexosThe aim of this paper is to analyse, using a vector error-correction model (VECM), the dynamic interaction between house prices and loans for house purchase in Spain. The results show that both variables are interdependent in the long run: loans for house purchase depend positively on house prices, while house prices adjust when this credit aggregate departs from the level implied by its long-run determinants. In contrast, disequilibria in house prices are corrected only through changes in this variable. As for short-run dynamics, the results show that the two variables have a positive contemporaneous impact on each other, indicating the existence of mutally reinforcing cycles in both variables. [resumen de autor

The impact of firms' financial position on fixed investment and employment : an analysis for Spain

Utilizando una muestra de gran tamaño de empresas no financieras españolas, este trabajo analiza el impacto que la situación financiera de las sociedades tiene sobre sus decisiones de inversión y contratación de empleados. Los resultados indican que la posición patrimonial de las empresas es relevante a la hora de explicar la inversión empresarial y los niveles de empleo, ya que el flujo de caja, el endeudamiento y la carga financiera son relevantes a la hora de explicar la evolución de ambas variables. Asimismo, los resultados obtenidos revelan que el impacto de la posición financiera de las sociedades sobre estas variables es no lineal, siendo más acusado para aquellas empresas que presentan una posición financiera menos saneada. También sugieren que el papel que desempeñan los factores financieros a la hora de explicar la evolución de la inversión y del empleo es mayor en períodos recesivosUsing a large sample of Spanish companies, this paper investigates the impact that firms’ financial health has on their investment and employment decisions. The results indicate that firms’ financial position is important for explaining firms’ capital expenditures and their employment levels, since cash flow, indebtedness and the debt burden appear to be relevant for explaining investment and employment dynamics. Likewise, the results obtained point to a non-linear impact of financial position on these decisions, this being larger for companies in a less sound financial situation, and suggest that the role of financial factors in explaining investment and employment dynamics is likely to be greater in recessionary period

The impact of financial variables on firms' real decisions : evidence from Spanish firm-level data

This paper analyses the impact of alternative measures of firms' financial health on their investment and employment decisions. The emphasis is on the analysis of disaggregated data on such financial indicators. For this purpose, itemised data from a sample of the non-financial firms reporting to the Banco de España Central Balance Sheet Data Office Annual Database for the period 1985-2001 is used. We find that corporate financial position -proxied by alternative indicators- affects business activity and that this impact is non-linear and becomes relatively more intense when financial pressure exceeds a certain threshold. We also construct, using different financial variables, composite indicators that summarize the non-linear impact that the financial position has on investment and employment. Our results suggest that the use of firm-level data is particularly relevant in episodes where the financial pressure on a significant number of firms reaches levels at which it has a pronounced influence on real activity. In these episodes, indicators based on aggregate data may not reliably reflect the system's financial soundness since they do not adequately reflect the vulnerability of the most fragile companie