| 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. |