INSIDE FINANCE CONSTRAINTS ON THE GROWTH OF ITALIAN SMALL MEDIUM SIZED ENTERPRISES
Abstract
Our study confirms that the financial constraints of the small and medium size enterprises’ (SME’s) growth tend to appear as an excess of sensibility of the investment expenditures on the firm’s cash flow. Through the application of dynamic panel data techniques to an extended version of Eulero’s investment equation of a sample of Italian SMEs, the analysis shows that the growth of small firms subsample in backward regions of Italy is more constrained by inside finance than that of firms in more developed regions. This is because the typical information opacity of SMEs is worsened here by the unsatisfactory development of financial markets. Moreover our analysis ascertains that the small firms can significantly relax the constraints if they establish a close relationship with the banks, making it easier for the banks to access the firm’s information.
References
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[35] Ongena, S., and Smith, D. 2000. What Determines the Number of Bank Relationships? Cross Country Evidence, Journal of Financial Intermediation 9: 26-56.
[36] Petersen, M., and Rajan, R. 1994. The Benefits of Lending Relationships: Evidence from Small Business Data, Journal of Finance 49: 3-37.
[37] Sarno, D. 2005. Liquidity Constraint on the Production of Firms in Southern Italy, Small Business Economics 25: 133-146.
[38] Sarno, D. 2008. Capital Structure and Growth of the Firms in the Backward Regions of the South Italy, Applied Financial Economics 18: 293-305.
[39] Sarno, D. 2008. Financial and Legal Constraints to Firm Growth: the Case of Italy, Journal of Applied Economic Sciences 3: 293-305.
[40] Schaller, H. 1993. Asymmetric Information, Liquidity Constraints and Canadian Investment”, Canadian Journal of Economics 26: 552-574.
[41] Von Thadden, E.L. 1995. Long-Term Contracts, Short-Term Investment and Monitoring, The Review of Economic Studies 62: 557-575.
[42] Westhead, P, and Storey, D.J. 1997. Financial Constraints on the Growth of High Technology Small Firms in the United Kingdom, Applied Financial Economy 7: 197-201.
[43] Zurutskie, R. 2006. Evidence of the Effects of Bank Competition on Firm Borrowing and Investment, Journal of Financial Economics 81: 503-537.
[2] Audretsch, D.B., and Elston, J.A. 2002. Does firm size matter? Evidence on the impacts of liquidity constraints on firm investment behavior in Germany, International Journal of Industrial Organization 20: 1-17.
[3] Bagella, M., Becchetti, L., and Caggese, A. 2001. Financial constraints on investment: a three-pillar approach based on a priori identification, Research in Economics. 55: 219-254.
[4] Becchetti, L., Castelli, A., and Hasan, I. 2009. Investment - cash flow sensitivities, credit rationing and financing constraints, Small Business Economics 35: 467-497.
[5] Berger, A.N., and Udell G.F. 1995. Relationship Lending and Lines of Credit in Small Firm Finance, Journal of Business 68: 351-381
[6] Berger, A.N., and Udell, G.F. 1998. The economics of small business finance: the role of private equity and debt markets in financial growth cycle, Journal of Banking and Finance 22: 613-673.
[7] Bianco, M. 1991. Vincoli finanziari e scelte reali delle imprese italiane: gli effetti di una relazione stabile con una banca, in Angeloni I., Conti V., Passacantando F. (a cura di), “Le banche ed il finanziamento delle imprese”, Bologna, Il Mulino: 23-60.
[8] Bond, S., and Meghir, S. 1994. Dynamic investment models and the firm’s financial policy, Review of Economic Studies 61: 197-222.
[9] Bond, S., Elston, J., Mairesse, J., and Mulkay, B. 2003. “Financial factors and investment in Belgium, France, Germany and UK: a comparison using company panel data, Review of Economics and Statistics 85: 153-165.
[10] Boot A.W.A. 2000. Relationship banking: what do we know, Journal of Financial Intermediation 9: 7-25.
[11] Boot A.W.A, and Thakor, A.V. 1994. Moral hazard and secured lending in an infinitely repeated credit market game, International Economic Review 35: 899-920.
[12] Boot, A.W.A, and Thakor, A.V. 2000. Can relationship banking survive competition?, Journal of Finance 2: 679-713.
[13] Clearly, S. 1999. The relationship between investment and financial status, Journal of Finance 54: 673-692.
[14] Cole, R. 1998. The importance of relationships to the availability of credit, Journal of Banking and Finance 22: 959-977.
[15] Cressy, R., and Olofsson C. (eds). 1997. European SME financing: an overview, Special Issue of Small Business Economics, Small Business Economics 9: 87-96.
[16] Detragiache, E., Garella, P., and Giuso, L. 2000. Multiple vs. Single Banking Relationships: Theory and Evidence, Journal of Finance 55: 1133-1161.
[17] Devereux, M., and Schiantarelli, F. 1990. Investment, financial factors and cash flow: evidence from U.K. panel data in HUBBARD G.R. (ed.) – Asymmetric Information, Corporate Finance and Investment, University of Chicago Press, Chicago.
[18] Dinç, S.I. 2000. Bank reputation, bank commitment and the effects on competition in credit markets, Review of Financial Studies 13: 781-812.
[19] Fazzari, M.S., Hubbard, G.R., and Petersen, B.C. 1988. Financing constraints and capital investment, Brooking Papers of Economic Activity: 141-195.
[20] Fazzari, M.S., Hubbard, G.R., and Petersen, B.C. 2000. Investment cash flow sensitivities are useful: a comment on Kaplan and Zingales, Quarterly Journal of Economics 115: 695-705.
[21] Gilchrist S., Himmelberg C.P. (1995). Evidence on the role of cash flow in reduced - form investment equations, Journal of Monetary Economics; vol. 36, pp. 541-572;
[22] Giunta, A., and Sarno, D. 2009. Firm’s financing and industrial structure in the less developed regions of the south Italy, Journal of Applied Economic Science 4: 509-525.
[23] Gomes, J.F. 2001. Financing investment, American Economic Review 91: 1263-1285.
[24] Greenbaum, S., Kanatas, G., and Venezia, I. 1989. Equilibrium Loan Pricing under the Bank-Client Relationship, Journal of Banking and Finance 13: 221-235.
[25] Hauswald, R., and Marquez, R. 2006. Competition and Strategic Information Acquisition in Credit Markets, Review of Financial Studies 19: 967-1000.
[26] Himmelberg, C.P., and Petersen, B. 1994. R & D and Internal Finance. A Panel Study of Small Firms in High Tech Industries, Review of Economics and Statistics 76: 38-51.
[27] Hoshi, T., Kashyap, A., and Scharfstein, D. 1991. Corporate Structure, Liquidity and Investment: Evidence from Japanese Panel Data, Quarterly Journal of Economics 106: 33-60.
[28] Hubbard, G.R. 1998. Capital-Market Imperfections and Investment, Journal of Economic Literature 36: 193-225.
[29] Kapapakkam, P.-R., Kumar, P.C., and Riddick L.A. 1998. The Impact of Cash Flows and Firm Size on Investment: the International Evidence, Journal of Banking and Finance 22: 293-320.
[30] Kaplan, S.N., and Zingales, L. 1997. Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints, Quarterly Journal of Economics 112: 169-215.
[31] Kaplan, S.N., and Zingales, L. 2000. Investment-Cash Flow Sensitivities are not Measures of Financial Constraints, Quarterly Journal of Economics 115: 707-712.
[32] Moyen, N. 2004. Investment-Cash Flow Sensitivities: Constrained versus Unconstrained Firms, Journal of Finance 59: 2061-2092.
[33] Oliner, S., and Rudebusch, G. 1992. Sources of the Financing Hierarchy for Business Investment, Review of Economics and Statistics 74: 643-654.
[34] Oliveira, B., and Fortunato, A. 2006. Firm Growth and Liquidity Constraints: a Dynamic Analysis, Small Business Economics 27: 139-156.
[35] Ongena, S., and Smith, D. 2000. What Determines the Number of Bank Relationships? Cross Country Evidence, Journal of Financial Intermediation 9: 26-56.
[36] Petersen, M., and Rajan, R. 1994. The Benefits of Lending Relationships: Evidence from Small Business Data, Journal of Finance 49: 3-37.
[37] Sarno, D. 2005. Liquidity Constraint on the Production of Firms in Southern Italy, Small Business Economics 25: 133-146.
[38] Sarno, D. 2008. Capital Structure and Growth of the Firms in the Backward Regions of the South Italy, Applied Financial Economics 18: 293-305.
[39] Sarno, D. 2008. Financial and Legal Constraints to Firm Growth: the Case of Italy, Journal of Applied Economic Sciences 3: 293-305.
[40] Schaller, H. 1993. Asymmetric Information, Liquidity Constraints and Canadian Investment”, Canadian Journal of Economics 26: 552-574.
[41] Von Thadden, E.L. 1995. Long-Term Contracts, Short-Term Investment and Monitoring, The Review of Economic Studies 62: 557-575.
[42] Westhead, P, and Storey, D.J. 1997. Financial Constraints on the Growth of High Technology Small Firms in the United Kingdom, Applied Financial Economy 7: 197-201.
[43] Zurutskie, R. 2006. Evidence of the Effects of Bank Competition on Firm Borrowing and Investment, Journal of Financial Economics 81: 503-537.
Published
2012-12-31
How to Cite
DONATI, Cristiana; CINQUEGRANA, Giuseppe; SARNO, Domenico.
INSIDE FINANCE CONSTRAINTS ON THE GROWTH OF ITALIAN SMALL MEDIUM SIZED ENTERPRISES.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 3, n. 2, p. 59-70, dec. 2012.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/1169>. Date accessed: 24 apr. 2024.
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