Managerial discretion and investment decisions of state-owned firms: Evidence from a panel of italian companies

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

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: 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 of excess sensitivity of investment to cash flow. We estimate an accelerator model with additional cash flow terms and test for parameter constancy across soft and hard budget constraint periods as well as across the business cycle. We find that managerial discretion is responsible for the investment cash flow correlation, especially during the soft budget period. The evidence also suggests that the change in budget regime has an important impact on the investment decisions of this panel of public enterprises.

Keywords: Capital Markets Imperfections; Public enterprises; Investment and Cash Flow; Soft-Budget Constraint; Business Cycle. (search for similar items in EconPapers)
JEL-codes: E32 G31 G32 L32 M40 (search for similar items in EconPapers)
Pages: 34 pages
Date: 1998-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:csc:cerisp:199807

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