In this paper we investigate the role of capital markets imperfections for the investment decisions of a panel of Italian manufacturing state-owned enterprises over the period 1977-1993. We explore whether asymmetric information and financing constraints or managerial discretion are the source...

In this paper we extend to state-owned enterprises the empirical work on investment-cash flow sensitivities. Our sample is a panel of Italian state-owned manufacturing firms over the period 1977-1993. The distinctive element of public firms’ financial environment is the budget regime under...

This paper contributes to the literature on the role of decentralization in hardening the budget constraint of public enterprises. Following Qian and Roland the study adopts a ‘federalist’ approach. However, it interprets federalism as the upward devolution of domestic economic policies to a...

This paper studies the effect of the hardening of the budget constraint on the behaviour of public enterprises. Drawing from finance theory, we provide empirical evidence of a change in behaviour of public enterprises between soft and hard budget constraint regimes by investigating the financial...

How do firms vary their capital investment and financing policies in response to business cycle fluctuations within their industry? To address this question, we use the regime-switching approach to compute the quarterly time-series of the probability of a future industry downturn for industry...

We propose a model of a firm's reversible investment decision with macroeconomic conditions based on optimal switching of a diffusion process. The switching costs of a diffusion regime and the cash flow generated by the firm depend on a business cycle which alternates via a Markov chain, and the...

We examine how legal creditor rights are related to debt financing and corporate investment over the business cycle. Using firm-level data from 40 countries, we find that creditor rights are associated with greater debt financing and investment during economic downturns, but creditor rights have...

Firm-level investment paths are commonly characterised by periods of low or zero investment punctuated by large investment ‘spikes’. We document that such spikes are important for understanding firm and aggregate level investment in the UK. We show that annual variation in aggregate...

Recent literature has shown that corporate indebtedness affects firm-level investment behavior but not necessarily aggregate business cycles. I argue that interactions among heterogeneous firms play an important role in equilibrium. After a downturn, financially unconstrained firms in...