2008/17 | LEM Working Paper Series | |
Financial Structure and Corporate Growth: Evidence from Italian Panel Data |
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Silvia Giannangeli, Giorgio Fagiolo, Massimo Molinari |
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Keywords | ||
Firm growth, Financial structure, Cash flow, Financial constraints, Gibrat law, Quantile regressions
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JEL Classifications | ||
L11, G30, D2
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Abstract | ||
We study the relationships between firm financial structure and growth for a large sample
of Italian firms (1998-2003). We expand upon existing analyses testing whether liquidity
constraints affect firm performance by considering among growth determinants also firm debt
structure. Panel regression analyses show that more liquid firms tend to grow more.
However, firms do not use their capital to expand, but rather to increase debt. We also
find that firm growth is highly fragile as it is positively correlated with non-financial
liabilities and it is not sustained by a long-term debt maturity. Finally, quantile
regressions suggest that fast-growing firms are characterized by higher growth/cash-flow
sensitivities and heavily rely on external debt, but seem to be less bank-backed than the
rest of the sample. Overall, our findings suggest that the link between firms’ investment
and expansion decisions is far more complicated than postulated by standard tests of
investment/cash-flow sensitivities.
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