“Financial constraints to enterprise investments: an international analysis on financial accounts of OECD countries”

Cinquegrana, Giuseppe and De Rita, Paola (2012): “Financial constraints to enterprise investments: an international analysis on financial accounts of OECD countries”.

Abstract

Since the ’80s, economic literature has stressed the importance of external financing on enterprises’ investment decisions; in particular the pecking order theory highlighted the existence of a hierarchy of financing sources, an approach that originates from the existence of asymmetric information between fund borrowers and lenders. The presence of effective financial constraints to the realisation of investments of productive units was reasserted in the work by Fazzari, Hubbard and Petersen (1988), which was followed by ample empirical and theoretical analysis of enterprises’ information opacity, of the consequent effects on access to external financing and of the lower cost of financing originating from internal cash flows generated by enterprise management. The present contribution delves into the analysis of the possible existence of financial constraints to enterprises’ investment decisions in different OECD countries, using as analytical tools the indicators of the composition of financial instruments within the liabilities and the net lending-net borrowing for the sector of non-financial corporations. The sources of information are OECD databases on financial and nonfinancial accounts per institutional sector.

• Item Type: MPRA Paper
• Language: English
• Keywords: information asymmetries, financial constraints, enterprises, financial accounts, liabilities, corporate investments, net lending-net borrowing
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Akerlof, G. (1970), The Market for Lemons: Qualitative Uncertainty and the Market Mechanism, Quarterly Journal of Economics, 84, 488-500.

Almeida, H., Campello, M. (2001), Financial constraints and investment-cash flow sensitivities: New research directions, Working paper, New York University.

Almeida, H., M. Campello, and M. Weisbach (2004), The Cash Flow Sensitivity of Cash, Journal of Finance 59, 1777-1804.

Alti, A. (2003), How Sensitive is Investment to Cash Flow When Financing is frictionless ?, Journal of Finance 58, 707-722.

Becchetti L. , Castelli A. , Hasan I. (2004), Investment-Cash Flow Sensitivities, credit rationing and financing constraints, mimeo.

Beger, A.N., G.F. Udell (2002), Small business Credit Availability and Relationship Lending: The importance of Bank Organisational Structure, Economic Journal, 112, F32-F53.

Diamond, D. (1984), Financial Intermediation and Delegated Monitoring, Review of Economic Studies, 51, 393-414.

Diamond, D. (1991), Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt, Journal of Political Economy, 99, 689-721.

Diamond, D., R. Rajan (2001), Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking, Journal of Political Economy 109, 287-327.

Fazzari S., R. G. Hubbard, and B. Petersen (1988), Financing Constraints and Corporate Investment, Brooking Papers on Economic Activity 1, 141-195, 24.

Fazzari, S., B. Petersen (1993), Working Capital and Fixed Investment: New Evidence on Financing Constrains, RAND Journal of Economics 24, 328-342.

Gershenkron, (1962), Economic Backwardness in Historical Perspectives, Cambridge, Mass., Harvard University Press.

Gertler, M., S. Gilchrist (1994), Monetary Policy, Business Cycles, and The Behavior of Small Manufacturing Firms, Quarterly Journal of Economics 109, 309-340.

Gertler, M., R. G. Hubbard (1988), Financial Factors in Business Fluctuations, in Financial Market Volatility, Federal Reserve Bank of Kansas City.

Gilchrist, S., C. Himmelberg (1995), Evidence on the Role of Cash Flow for Investment, Journal of Monetary Economics 36, 541-572.

Ginsberg A. , I. Hasan (1995), Evidence on the Role of Cash Flow for Investment, Journal of Monetary Economics 36, 541-572.

Gomes, J. ( 2001), Financing Investment,.American Economic Review 91, 1263-1285.

Hubbard, R. G. (1998), Capital Market Imperfections and Investment, Journal of Economic Literature 36, 193-227.

Hubbard, R. G., Kashyap, A., and Whited, T. (1995), Internal Finance and Firm Investment, Journal of Money, Credit, and Banking 27, 683-701.

Jensen, M., Meckling, W. (1976), Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics, 305-360.

Kaplan, S., L. Zingales (1997), Do Financing Constraints Explain why Investment is Correlated with Cash Flow?, Quarterly Journal of Economics 112, 169-215.

Leland, H.E., Pyle, D.H. (1977), Information Asymmetries, Financial Structure and Financial Intermediaries, Journal of Finance, 32, 371-387.

Moyen, N. (2004), Investment-cash flow sensitivity: constrained versus unconstrained firms, Journal of Finance, 59, 2061-2092.

Myers, S., Mailuf M. (1984), Corporate Financing and investment decisions when firms have information that investors do not have, Journal of Financial Economics, 187-221.

Myers, S., Rajan R. (1998), The Paradox of Liquidity, Quarterly Journal of Economics 113, 733-777. Rapporto CER 2012, Centro Europa Ricerche S.r.l., Roma.

Sharpe, S., (1994), Financial Market Imperfections, Firm Leverage and the Cyclicality of Employ- ment,.American Economic Review 84, 1060-1074. Stiglitz, J.E., Weiss A. (1981), Credit rationing in markets with imperfect information, American Economic Review, 71, 393-41.

OECD data http://stats.oecd.org/Index.aspx?DatasetCode=SNA_TABLE720#

Eurostat data http://epp.eurostat.ec.europa.eu/portal/page/portal/national_accounts/data/database