Does debt discipline state-owned firms? Evidence from a panel of Italian firms

Elisabetta Bertero and Laura Rondi
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Elisabetta Bertero: London School of Economics, UK

CERIS Working Paper from CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY

Abstract: This paper investigates whether financial pressure has an impact on the performance of state-owned firms. By combining different theoretical frameworks, we explore the conditions under which debt discipline becomes effective even for state firms. Using a panel of 1318 Italian state and private manufacturing companies, for the period 1977-1993, we estimate total factor productivity and employment equations, allowing the financial factors to have a different effect under "soft" and "hard" budget constraint regimes. Consistent with the theoretical predictions, the results show that state firms do respond to financial pressure by increasing total productivity and reducing employment in a "hard" budget constraint environment.

Keywords: debt; high leverage; financial distress; state-owned firms; soft budget constraint; total productivity; employment; panel data; Italian firms (search for similar items in EconPapers)
JEL-codes: D21 D24 G32 L33 (search for similar items in EconPapers)
Pages: 43 pages
Date: 1997-12
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:csc:cerisp:199711

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