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Form of ownership and financial constraints : panel data evidence from leverage and investment equations

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  • Schiantarelli, Fabio
  • Sembenelli, Alessandro

Abstract

The authors analyze whether form of ownership affects the substitutability of internal and external sources of finance. In particular, they test whether financial constraints are more severe for independent firms, and whether members of large national business groups suffer different constraints than subsidiaries of foreign multinational corporations. The results for leverage and investment equations estimated for a panel of Italian companies suggest that: a) independent firms face more severe financial constraints than other firms do; and b) members of national groups and subsidiaries of multinational corporations are not oversensitive to cash flow in their investment decisions. But leverage equations suggest interesting differences between the two groups. In particular, agency costs arising from the conflict between managers and shareholders are more important for subsidiaries of multinational corporations.

Suggested Citation

  • Schiantarelli, Fabio & Sembenelli, Alessandro, 1996. "Form of ownership and financial constraints : panel data evidence from leverage and investment equations," Policy Research Working Paper Series 1629, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1629
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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. Gómez, Miguel García-Posada, 2018. "Credit constraints, firm investment and growth: evidence from survey data," Working Paper Series 2126, European Central Bank.
    3. 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.
    4. Miguel García-Posada Gómez, 2018. "Credit constraints, firms investment and growth evidence from survey data," Working Papers 1808, Banco de España.
    5. 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.
    6. 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.
    7. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    8. 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.
    9. 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.
    10. 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.
    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. 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.
    13. 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.
    14. 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.
    15. 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.
    16. Alejandro Diaz-Bautista & Julio R. Escandon, 2003. "A Simple Dynamic Model of Credit and Aggregate Demand," Macroeconomics 0308001, University Library of Munich, Germany.
    17. 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.
    18. 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.
    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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