The link investment-finance: an empirical analysis on the Italian mechanic sector

This paper analyzes the investments of the Italian mechanical firms with a model with simultaneous investments and financial structure. In our empirical specification the neoclassical and the new-keynesian «excess sensitivity» models are empirically contrasted as two sub-cases of a more general framework. The choice of the relevant variables is implemented with a battery of preliminary Granger causality tests; the lag structure of the model is defined with the help of the «General-to-specific» approach. Our empirical results are, surprisingly, consistent with the neoclassical theory rather than the new-Keynesian «excess sensitivity» model. This result contrasts with an extended empirical literature, normally based on the data of corporations, listed in the stock markets. Therefore the behaviour of medium and small sized firms, largely depending on bank credit seems to be more regular and consistent with the conventional neoclassical modelling features. This result does not necessarily rule out the relevance of financial market imperfections and it might be due to other factors such the role of bank-customer relations in reducing information asymmetries in the bank credit market.