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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. 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.
    3. 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.
    4. 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.
    5. Alejandro Diaz-Bautista & Julio R. Escandon, 2003. "A Simple Dynamic Model of Credit and Aggregate Demand," Macroeconomics 0308001, University Library of Munich, Germany.
    6. Caprio, Gerard, Jr & Demirguc-Kunt, Asli, 1998. "The Role of Long-Term Finance: Theory and Evidence," The World Bank Research Observer, World Bank Group, vol. 13(2), pages 171-189, August.
    7. 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.
    8. Anna Bottasso, 1996. "Firms’ Financial Structure And Real Decisions: A Critical Survey Of The Empirical Literature," CERIS Working Paper 199623, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    9. 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.
    10. 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.
    11. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    12. 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.
    13. 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.
    14. Laura Rondi & Alessandro Sembenelli, 1997. "Investment, Financial Factors and Business Fluctuations," CERIS Working Paper 199717, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    15. 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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