Slash in Corporate Investment Creating Long-term Problems

CHAMPAIGN, Ill. – A deep and lingering credit crisis is throttling investment in moneymaking projects that could help jump-start a U.S. economy mired in its worst downturn in decades, a new survey of corporate executives shows.

University of Illinois and Duke University researchers found that nearly 60 percent of 569 U.S. firms surveyed are financially strapped by the credit crunch, netting layoffs and other cost-cutting moves that weaken an already hobbled economy.

The survey also shows that tight lending is forcing nearly 90 percent of those credit-constrained firms to pass up potentially lucrative projects that could boost earnings, employment and the overall economy.

“We see what firms are doing in the aftermath of the credit crisis, but we don’t see what they’re not doing,” said U. of I. finance professor Murillo Campello. “And what this research shows is that what they’re not doing is pursuing projects that could help build and sustain the U.S. economy for the next 10 years.”

As part of a survey project conducted jointly with CFO magazine, chief financial officers of 1,050 companies in the U.S., Europe and Asia were polled in December, asking whether their firms have been pinched by an ongoing credit crisis and how tight lending is affecting operations.

The study, co-written by finance professors John Graham and Campbell Harvey of Duke’s Fuqua School of Business, found stark contrasts between U.S. firms constrained by the financial crisis compared with those with easier access to credit.

Among the findings: