A Bayesian approach to investment decisions

This study analyses the investment decisions of 497 Brazilian firms in the period 1986–97. The role of financial constraints is considered both theoretically and empirically, through the use of Bayesian econometric models. We use longitudinal data, with firm-specific information for different years, allowing for the abandonment of the representative firm model. Information on capital intensity at the firm level allows for the separation of firms according to this variable, and makes it possible to consider information asymmetries. We estimate two different models, and the results suggest the presence of financial constraints, especially for capital-intensive firms.