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Ownership Structure, Financial Constraints and Investment Decisions: Evidence from a Panel of Italian Firms

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Over the part two decades, a wide empirical literature has addressed the theme of firmtevel financial constraints, supporting the hypothesis that the availability of internal funds is indeed a major driver of investment decisions (Hímmeiberg and Petersen, 1994). The largest part of such empirical analyses is based on refinements of the original model by Fazzari, Hubbard and Petersen (1988) which derives the presente of liquidìty constraints from the observation of differentials in Investment-cash flow elastìcities among sub groups of companíes. However, the theoretical ride of the issue is stili debated. Following Iladlock (1998) and Degryse and de jong (2006), investment - cash flow sensitivities can be attributed to the presente of two different factors: asymmetric information on capital markets or internal agency problems leading to overinvestment by the management. In this paper, we try to disentangle the different potential determinante underlving the observed positive elasticity between investments and internal resources using a new sample of 1035 Italian manufacturing firms observed in the period 1998-2003. In order to analyse to what extent investment elasticity míght be related to agency problems, we account for both the ownership strutture of the companies and the role played by financial intermediaries as both investors and debt-holders. The most interesting result emerging from our analysis is related to the presente of an inverted - U relatìonship between concentration of ownership and the elasticity of investment to cashflow. The overall evidente, which includer analysis accounting for innovation effort and for the effect of industrial group membership, is supportive of the hypothesîs that the elevated dependance of investment in both tangible and intangible capital on internal resources cannot be fully attributed to frictions on the credit market.

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  • Crespi, Francesco & Scellato, Giuseppe, 2007. "Ownership Structure, Financial Constraints and Investment Decisions: Evidence from a Panel of Italian Firms," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 200705, University of Turin.
  • Handle: RePEc:uto:labeco:200705
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    1. Foglia, A. & Laviola, S. & Marullo Reedtz, P., 1998. "Multiple banking relationships and the fragility of corporate borrowers," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1441-1456, October.
    2. Stephen Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial factors and investment in Belgium, France, German and the UK: A comparison using company panel data," IFS Working Papers W97/08, Institute for Fiscal Studies.
    3. Audretsch, David B. & Elston, Julie Ann, 2002. "Does firm size matter? Evidence on the impact of liquidity constraints on firm investment behavior in Germany," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 1-17, January.
    4. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    5. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-243, May.
    6. Audretsch, David B. & Elston, Julie Ann, 2002. "Does firm size matter? Evidence on the impact of liquidity constraints on firm investment behavior in Germany," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 1-17, January.
    7. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    Cited by:

    1. Pilar Beneito & María E. Rochina-Barrachina & Amparo Sanchis, 2013. "Ownership and cyclicality of firms’ R&D investment," Working Papers 1306, Department of Applied Economics II, Universidad de Valencia.

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