Investment of Firms in Brazil: Do Financial Restrictions, Unexpected Monetary Shocks and BNDES Play Important Roles?

Our objective in this paper is to estimate the dynamics of firm investment in Brazil. For this purpose, we built an original database with confidential and public data containing balance sheet and financial information of 5,026 public and private firms from the third quarter of 1994 to the fourth quarter of 2010. We then classify these firms as financially restricted or not, according to several classification schemes found in the literature. Our results show that unexpected monetary policy, financial restrictions and Brazil´s development bank, BNDES, financing policies are very important to explain the dynamics of investment in Brazil. Our results are robust to several model specifications, econometric techniques and classifications schemes of financially and non-financially restricted firms.