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Form of Ownership and Financial Constraints: Panel Data Evidence from Leverage and Investment Equations

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  • Fabio Schiantarelli

    (Boston College)

  • Alessandro Sembenelli

    (CERIS-CNR)

Abstract

This paper analyzes the effects of the form of ownership on the substitutability between internal and external sources of finance. In particular, we test whether financial constraints are more severe for independent firms and whether there are differences between members of large national business groups and subsidiaries of foreign multinational corporations. The results obtained from leverage and investment equations estimated for a panel of Italian companies imply that independent firms face more severe financial constraints. Moreover, such constraints are greater when cash flow decreases. Members of national groups and subsidiaries of multinational corporations are less sensitive to cash flow in their investment decisions. Leverage equations suggest, however, that there are interesting differences between the two latter categories of firms. In particular, agency costs arising from the conflict between managers and shareholders are more important for subsidiaries of multinational corporations.

Suggested Citation

  • Fabio Schiantarelli & Alessandro Sembenelli, 1995. "Form of Ownership and Financial Constraints: Panel Data Evidence from Leverage and Investment Equations," Boston College Working Papers in Economics 286., Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:286
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    Cited by:

    1. Sevcan Yesiltas, 2009. "Financing Constraints and Investment: The Case of Turkish Manufacturing Firms," 2009 Meeting Papers 874, Society for Economic Dynamics.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Laeven, Luc & Maksimovic, Vojislav, 2006. "The determinants of financing obstacles," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 932-952, October.
    3. Schiantarelli, Fabio & Sembenelli, Alessandro, 1997. "The maturity structure of debt : determinants and effects on firms'performance - evidence from the United Kingdom and Italy," Policy Research Working Paper Series 1699, The World Bank.
    4. Andrikopoulos, Andreas A. & Prodromidis, Kyprianos P., 2001. "The qualitative element in organization behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 30(4), pages 353-362.
    5. García-Posada Gómez, Miguel, 2019. "Credit constraints, firm investment and employment: Evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 121-141.
    6. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    7. 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.
    8. Pratap, Sangeeta, 2003. "Do adjustment costs explain investment-cash flow insensitivity?," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 1993-2006, September.
    9. Jason G. Cummins & Kevin A. Hassett & Stephen D. Oliner, 2006. "Investment Behavior, Observable Expectations, and Internal Funds," American Economic Review, American Economic Association, vol. 96(3), pages 796-810, June.
    10. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1995. "Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity," Macroeconomics 9510001, University Library of Munich, Germany, revised 09 Oct 1995.
    11. 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.
    12. Gómez, Miguel García-Posada, 2018. "Credit constraints, firm investment and growth: evidence from survey data," Working Paper Series 2126, European Central Bank.
    13. Alejandro Diaz-Bautista & Julio R. Escandon, 2003. "A Simple Dynamic Model of Credit and Aggregate Demand," Macroeconomics 0308001, University Library of Munich, Germany.
    14. Caprio, Gerard, Jr & Demirguc-Kunt, Asli, 1998. "The Role of Long-Term Finance: Theory and Evidence," The World Bank Research Observer, World Bank, vol. 13(2), pages 171-189, August.
    15. Miguel García-Posada Gómez, 2018. "Credit constraints, firms investment and growth evidence from survey data," Working Papers 1808, Banco de España.
    16. Anna Bottasso, 1996. "Firms’ Financial Structure And Real Decisions: A Critical Survey Of The Empirical Literature," CERIS Working Paper 199623, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    17. Ábel, István & Öcsi, Béla, 1999. "Finanszírozási szerkezet és tulajdonforma [Financing structure and ownership form]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 888-904.
    18. Laura Rondi & Alessandro Sembenelli, 1997. "Investment, Financial Factors and Business Fluctuations," CERIS Working Paper 199717, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    19. Maria Angelica Arbelaez & Juan Jose Echavarria, 2002. "Credit, Financial Liberalization and Manufacturing Investment in Colombia," Research Department Publications 3145, Inter-American Development Bank, Research Department.

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