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Financial flexibility across the euro area and the UK

Listed author(s):
  • Ferrando, Annalisa
  • Marchica, Maria-Teresa
  • Mura, Roberto

We use a large database of more than 685,000 European firms to show that financial flexibility attained through conservative leverage policies is more important for private, small, medium-sized and young firms and for firms in countries with lower access to credit and weaker investor protection. Further, using the recent financial crisis as a natural experiment, we show that financial flexibility status allows companies to reduce the negative impact of liquidity shocks on their investment decisions. Our findings support the hypothesis that financial flexibility relates to companies JEL Classification: G31, G32, D92

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Paper provided by European Central Bank in its series Working Paper Series with number 1630.

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Date of creation: Jan 2014
Handle: RePEc:ecb:ecbwps:20141630
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