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Managerial discretion and investment decisions of state-owned firms: Evidence from a panel of italian companies

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In this paper we investigate the role of capital markets imperfections for the investment decisions of a panel of Italian manufacturing state-owned enterprises over the period 1977-1993. We explore whether asymmetric information and financing constraints or managerial discretion are the source of excess sensitivity of investment to cash flow. We estimate an accelerator model with additional cash flow terms and test for parameter constancy across soft and hard budget constraint periods as well as across the business cycle. We find that managerial discretion is responsible for the investment cash flow correlation, especially during the soft budget period. The evidence also suggests that the change in budget regime has an important impact on the investment decisions of this panel of public enterprises.

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  • Elisabetta Bertero & Laura Rondi, 1998. "Managerial discretion and investment decisions of state-owned firms: Evidence from a panel of italian companies," CERIS Working Paper 199807, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    • Handle: RePEc:csc:cerisp:199807
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    Cited by:

    1. Giovanni Fraquelli & Fabrizio Erbetta, 1999. "Privatization in Italy: an analysis of factors productivity and technical efficiency," CERIS Working Paper 199905, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    2. Robert Carpenter & Laura Rondi, 2000. "Italian Corporate Governance, Investment, and Finance," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(4), pages 365-388, December.
    3. Rumen Dobrinsky, 2007. "Capital accumulation during the transition from plan to market," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15, pages 845-868, October.

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    More about this item

    Keywords

    Capital Markets Imperfections; Public enterprises; Investment and Cash Flow; Soft-Budget Constraint; Business Cycle.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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