Why are certain firms and their output more sensitive to changes in general business conditions? An empirical analysis using notions embedded in Austrian Capital theory

Mikkel Bryndum Sørensen

Student thesis: Master thesis

Abstract

Firms are increasingly buffeted by more rapid, unexpected and incessant changes in external business conditions. In this context, this thesis represents an approach seeking to explain and understand why some firms are more sensitive to changes in general business conditions. In this thesis, theoretical considerations embedded in Austrian capital theory, are used in order to achieve this insight. However, Austrian capital theory applied on a firm-level has been subject to little academic attention. Thus, a specific distinct contribution of this thesis is the operationalization of key concepts into measurable variables on a firm-level. Key concepts used are time and capital heterogeneity. The suggestion is that a firm’s capital position in the temporal capital structure moderates its sensitivity to changes in general business conditions This thesis uses extensive firm data from 6.511 firms collected from ORBIS covering the period from 2003-2012. The proposed relationships are explored through the development of two regression models. First, using output data from 2003-2012, 6.511 separate estimations measuring sensitivity to changes in general business conditions are calculated. Hence, the same regression model with time series data is used for all 6.511 estimations. Second, using a cross-sectional multiple regression model, the variation in these 6.511 firm estimations are explained through the use of the developed measurable variables. The thesis cannot establish evidence for the suggestion that a firm’s capital position has a moderating explanation to sensitivity to changes in general business conditions. But, instead of rejecting Austrian capital theory applied on firm-level, it is suggested that evidence cannot be established due to substantial non-response issues in data. Hence, the proposed model applied with better data may give improved insights.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2013
Number of pages94