University of Twente Student Theses


Fixed investments: The role of the credit crisis and working capital in the Netherlands

Bakker, Andrea (2010) Fixed investments: The role of the credit crisis and working capital in the Netherlands.

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Abstract:This study analyzes the impact of the credit crisis on fixed investment of 93 firms in the Netherlands. The emphasis lies on the role of working capital as mitigating or worsening factor during the credit crisis. Several striking results were found. First, contrary to U.S. research on fixed investments, Dutch companies did not reduce their level of fixed investments significantly during the credit crisis. Second, it demonstrates that working capital, specifically cash and receivables, plays a mitigating role in the effect of the credit crisis on fixed investments; in support of the precautionary motive (i.e. Fazzari & Petersen, 1993), high cash and receivables companies reduced investments significantly less than companies with low cash and receivables reserves. Short term debt does not play a role in mitigating or strengthening the effect of the credit crisis on fixed investments when accompanied by high levels of working capital. Case studies reveal that all companies examined focused on reducing working capital during the crisis to increase free cash flow. The way in which cash is made available and how it is used depends on the effect of the credit crisis and the focus/goals of companies over this period. This research section led to the following propositions: Preserving stable levels of fixed investment is less of a priority for Dutch companies with growth ambitions based on external acquisitions than for those focused on internal growth. Furthermore, companies with high levels of interest bearing debt are hit harder by the credit crisis. Debt reductions, in order to prevent covenant breaches and refinancing during the credit crisis, are focused on at the expense of all other activities requiring finance i.e. fixed investments and working capital for operations. The effect of measures taken to reduce working capital is impacted by the company’s position in the supply chain, the buyer/supplier power and the company’s working capital investment strategy prior to the crisis
Item Type:Essay (Master)
Orchard Finance Consultants
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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