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

  • Schiantarelli, Fabio
  • Sembenelli, Alessandro

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1629.

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Date of creation: 31 Jul 1996
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Handle: RePEc:wbk:wbrwps:1629
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  1. Gilchrist, S. & Himmelberg, C.P., 1995. "Evidence on the Role of Cash Flow for Investment," Papers 95-29, Columbia - Graduate School of Business.
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  17. 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.
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