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Financial constraints and relationship lending in the growth of italian SMEs

Author

Listed:
  • Cinquegrana, Giuseppe
  • Donati, Cristiana
  • Sarno, Domenico

Abstract

Our study confirms that the financial constraints to SME’s growth tend to appear as an excess of sensibility of the investment expenditures on 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 the subsample of the small firms 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 are able to establish a close relationship with the banks making easier the access of bank to firm’s information.

Suggested Citation

  • Cinquegrana, Giuseppe & Donati, Cristiana & Sarno, Domenico, 2012. "Financial constraints and relationship lending in the growth of italian SMEs," MPRA Paper 39825, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39825
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    References listed on IDEAS

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    Cited by:

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    2. Jiří Schwarz & Martin Pospíšil, 2018. "Bankruptcy, Investment, and Financial Constraints: Evidence from the Czech Republic," Eastern European Economics, Taylor & Francis Journals, vol. 56(2), pages 99-121, March.
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    More about this item

    Keywords

    firm growth; financial constraints; relationship lending;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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