Using large-company panel data, this thesis empirically analyses investment
decisions in major European countries. We particularly concentrate on three
issues: the taxation of capital in the EU, the role of agency costs of debt on
investment decisions, and the empirical analyses of the investment-uncertainty
relationship. First, based on a dynamic system in capital and Tobin's q ratio, some
simplified analytical results are derived to simulate various tax policy effects on
investment. Also, for a single investment project, a model is developed to consider
jointly the role of uncertainty and irreversibility in the taxation of capital. The
simulation results cast doubt on the tax competition view for the domestic
investment case. Second, using a Euler equation approach, an investment equation
is derived to test the possible effects of agency/financial distress costs of debt on
investment for UK, German and French firms. The results reveal that the
agency/financial distress cost of debt does matter for the highly leveraged firms.
Further, an alternative model is derived in a q theory framework to test this
negative effect. The model is tested for the UK firms, and similar results are
obtained. Third, by considering the product structure of firms, the firm-level
investment-uncertainty relationship is tested for UK firms. Unlike previous
empirical findings, the results support the two opposing views in this field.
Additionally, using vector autoregression analysis, a statistical account of the
aggregate investment-uncertainty relation is given for the UK. An important
observation is that although the exchange rate uncertainty has negative effects on
machinery and equipment investment, it has no effect on construction investment.
Date of Award | 1999 |
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Original language | English |
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Awarding Institution | |
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CAPITAL INVESTMENT DECISIONS OF LARGE INDUSTRIAL FIRMS IN MAJOR EUROPEAN COUNTRIES
Yilmaz, F. (Author). 1999
Student thesis: PhD