Annalisa Ferrando

Financing Constraints and Firms' Cash Policy in the Euro Area

This paper investigates the financing conditions of non-financial corporations in the euro area. We develop a new firm classification based on micro-data by distinguishing between three groups of firms: unconstrained, relatively and absolutely constrained firms. We also provide further evidence on the sources of the correlation between corporate cash flow and cash savings by conducting the analysis in a dynamic framework. Our results suggest that the propensity to save cash out of cash flows is significantly positive regardless of firms’ financing conditions. This implies that even for firms with favourable external financing conditions, the internal cash flow is used in a systematic pattern for inter-temporal allocation of capital. The results also indicate that the cash flow sensitivity of cash holdings cannot be used for testing financing constraints of euro area firms.

Determinants of Government Bond Spreads in New EU Countries

For the period 2001-8, we propose an empirical assessment of the determinants of borrowing costs of new European Union member countries. The results of a dynamic panel error-correction model, accounting for both common long-run determinants and cross-country heterogeneities suggest that fundamentals still matter for market assessment of a countrys creditworthiness. We check the long-run determinants for two subgroups of countries based on their current account balances. In the context of heightened risk aversion, one group of countries, characterized by low fiscal discipline, is more exposed to domestic sources of vulnerability as well as to swings in market perceptions of sovereign risk.

Financing Obstacles and Growth: An Analysis for Euro Area Non-Financial Corporations

This paper investigates whether financial obstacles, and, more generally, financial pressure faced by firms, significantly affect firm growth. For this purpose, we use an unbalanced panel of about 1,000,000 observations for around 155,000 non-financial corporations in five euro area countries. In addition to the balance sheet information in this panel, we also rely on firm level survey data. In this way we are able to work out a direct measure of the firms’ probability of facing financing obstacles. Our results indicate that, though based on few variables, this measure appears to be relevant in explaining firm growth in four out of the five countries considered. Other firm-level variables related to the financial pressure faced by firms, such as cash flow (debt burden) are found to exert a positive (negative) impact on firm growth, while the results for leverage are less clear-cut.

Financing obstacles and growth: an analysis for euro area non-financial firms

This paper investigates the determinants of financing obstacles (FOs) and their impact on firm growth. For this purpose, we rely on both balance sheet data and survey data for a sample of non-financial firms in the euro area. The latter allows us to devise a direct measure of the firms’ probability of facing FOs. First, our results indicate that FOs are linked to characteristics such as the age of the firm, its size, its sales level or the sector in which it operates. Second, we find that, though based on few variables, our measure of FOs appears to be relevant in explaining firm growth in four out of the five countries considered; likewise, growth is found to be positively linked to cash flow.

Creditor protection, judicial enforcement and credit access

ABSTRACT We investigate the impact of the legal system on whether firms obtain the credit they apply for or not. Data comprise unique information provided directly by 48,590 firms from 11 European countries. We look at the strength of creditor protection, the strength of property rights, the time taken to resolve a dispute, the dispute resolution process’s costs and the number of procedures the plaintiff faces using data provided by the World Bank and the Heritage Foundation. The results suggest that the more efficient the judicial enforcement system is, and the higher the creditor protection is, the lower the probability that the firms are partially or totally denied credit. Our results are robust to selection bias (Heckman selection) as well as different controls and different estimation techniques. We find that these variables have considerable economic impact: the probability of obtaining credit is up to 40% higher in countries with more robust legal systems.

The Real Effects of Credit Constraints: Evidence from Discouraged Borrowers in the Euro Area

This paper uses a new survey-based data set and a model with strong theoretical under-pinnings to explain the characteristics and behaviour of discouraged borrowers in the euro area. The results show that more borrowers are discouraged when the average interest rate charged by banks in a country is higher. Higher corporate tax rates, on the other hand, lead to lower discouragement. We show that discouragement has strong negative effects on in- vestment growth (-4.7pp), employment growth (-2.7pp) and asset growth (-2.9pp) due to the lack of access to bank finance in the two years following the discouragement. Furthermore, we estimate that the majority of discouraged borrowers would be unable to get a loan if they would apply. Consistent with this low loan approval likelihood, discouraged borrowers tend to be relatively risky firms. JEL Classification: G01, G10, G30, G32

Non-Bank Financing for Euro Area Companies During the Crisis

During the recent financial crisis the strong dependency of euro area non-financial corporations—and in particular SMEs—on bank financing has left them exposed to the weaknesses and deleveraging needs of the EU banking sector. This chapter examines the extent to which the available non-bank funding sources—from grants/subsidized loans, trade credit, other loans, and leasing to market-based finance—were accessible to companies when bank loans dried up, pointing to differences across firms and countries. Results signal that, during the crisis period, firms reporting they were constrained in their access to bank loans tended to switch more often to trade credit and leasing, but firms in those countries most affected by the crisis faced more difficulties carrying out this switch in financing.

Does employment protection legislation affect credit access? Evidence from Europe

We investigate the impact of employment protection on firms credit access by looking at both credit obtained from banks and firms’ decision to apply for a loan. We find that greater flexibility in structuring the employees’ working hours and in dismissing employees increases the probability that firms obtain credit and that greater flexibility in dismissing employees decreases the probability that firms are discouraged from applying for credit. However, our findings also reveal that firms perceive regulations providing flexibility with regard to the employees’ working hours differently from banks, leading to a situation in which firms are more likely to be discouraged from applying for a loan, even though the probability to obtain a loan increases. Our results are robust to confounding, endogeneity, selection bias as well as to alternative specifications. JEL Classification: D22, G21, G32, J41

Neither a Borrower Nor a Lender Be! Loan Application and Credit Decision for Young European Firms

We investigate the impact of banks’ capability to recover a loan on firms’ propensity to apply for credit and on banks’ propensity to lend, looking at firms from eleven European countries. Our findings suggest that banks’ recovery rates negatively affect firms’ decisions to apply for credit but not banks’ decision to provide credit. We also find that the role of recovery rates differs in economically weak and strong contexts: high recovery rates discourage borrowers only in economically strong countries and have a positive impact on banks’ lending decisions in economically weak countries.

Firms’ Financial Statements and Competitiveness: An Analysis for European Non-Financial Corporations Using Micro-Based Data

In the empirical analysis the use of micro-data often encounters confidentiality issues, especially when data are derived from different countries. One way to tackle this type of problems is known as “distributed micro-data analysis”, which proposes an aggregation of data with sufficient information on the distribution of the underlying micro-based data. In this paper we propose an inverse analysis, i.e. a methodology to mimic the anonymised firms’ micro-data starting from a distributed micro-dataset and using standard equations and assumptions about the distribution of the residuals that are most likely to reproduce the original micro dataset. As a result this paper offers an easy tool to analyse the firm-level financial ratios, such as firms’ leverage, profitability, and productivity performance of firms across country, sector and firm size even when firm-level data are not readily available.