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

  • Fabio Schiantarelli


    (Boston College)

  • Alessandro Sembenelli


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.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 286..

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Date of creation: Apr 1995
Date of revision:
Handle: RePEc:boc:bocoec:286
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  1. repec:bla:restud:v:61:y:1994:i:2:p:197-222 is not listed on IDEAS
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  8. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
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  11. Rondi, Laura & Sembenelli, Alessandro & Zanetti, Giovanni, 1994. "Is excess sensitivity of investment to financial factors constant across firms? Evidence from panel data on Italian companies," Journal of Empirical Finance, Elsevier, vol. 1(3-4), pages 365-383, July.
  12. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
  13. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
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  18. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-60, September.
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