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Banks, related variety and firms’ investments

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Listed:
  • Roberto Antonietti
  • Giulio Cainelli
  • Monica Ferrari
  • Stefania Tomasini

Abstract

In this paper, we study whether related variety affects firms’ fixed investment behaviour, and whether this relationship is linked also to the operational and organizational proximity between banks and local economies. By estimating different specifications of a dynamic investment equation on an unbalanced panel of Italian manufacturing firms for the period 2000–2007, we find that related variety boosts fixed investments by lowering their sensitivity to cash flow. This occurs because in technologically related areas banks benefit from lower screening and monitoring costs, easier re-allocation of property rights, and higher likelihood of establishing extended credit relationships with firms. However, we find also that the positive effect of related variety on investments disappears as the functional distance between local branches and their headquarters increases: more hierarchical and less embedded banks find it more difficult to collect tacit information on inter-firm production and financial linkages at the local level and therefore reduce credit provision. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Roberto Antonietti & Giulio Cainelli & Monica Ferrari & Stefania Tomasini, 2015. "Banks, related variety and firms’ investments," Letters in Spatial and Resource Sciences, Springer, vol. 8(1), pages 89-99, March.
    • Handle: RePEc:spr:lsprsc:v:8:y:2015:i:1:p:89-99
    DOI: 10.1007/s12076-014-0130-2
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    3. Timmermans, Bram & Fitjar, Rune Dahl, 2015. "Skill Relatedness in Norway by Bram Timmermans and Rune Dahl Fitjar," UiS Working Papers in Economics and Finance 2015/20, University of Stavanger.

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    More about this item

    Keywords

    Error correction model; Fixed investments; Functional distance; Operational proximity; Related variety; G21; G34; L60; O12; R51;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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