Financial constraints and relationship lending in the growth of italian SMEs

Giuseppe Cinquegrana, Cristiana Donati and Domenico Sarno

MPRA Paper from University Library of Munich, Germany

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.

Keywords: firm growth; financial constraints; relationship lending (search for similar items in EconPapers)
JEL-codes: E22 G31 G32 (search for similar items in EconPapers)
Date: 2012-07-04
New Economics Papers: this item is included in nep-ban and nep-ent
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Citations: View citations in EconPapers (4)

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