A Cross-country Study of Corporate Financial Structure and the Flexibility Issue
Firms need flexibility, defined as the capacity to react to unexpected situations. Corporate flexibility improves with liquidity. For non-financial firms, sources of liquidity are twofold: internal, by keeping cash, and external, through a borrowing power, usually from banks. On the average, a high rate of cash testifies to a lack of mutual trust between bank and firm, typical of a 'procedure-based' banking model and a 'Exit-dominated' financial system (versus a 'Voice-dominated' one). Data Analysis supports the view that cash balance is an indicator of corporate financial pattern which should be taken into account to characterize national financial systems. This article brings a new perspective to the analysis of financial system differences by focusing on corporate liquidity.
Volume (Year): 221 (2001)
Issue (Month): 5-6 ()
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