Small Firm Investment and Financing Decisions: An Option Value Approach

This paper reviews and discusses recent developments undergone by investment theory, and tries to address both financial and real decisions within an uncertain environment, here, the Italian economy. According to the recent "option value" approach to investment, if differing degrees of reversibility characterize the accumulation process by groups of firms (small and larger firms), we should expect their investment decisions to differ under uncertainty. On the other hand, asset reversibility has an influence on firm financing policy, given the observed relationship between asset and liability composition. Assuming a different degree of investment reversibility for small and larger firms, we explore how they react to interest rate uncertainty using the Italian experience during the 1980s as a benchmark. The main result of this paper is that interest rate uncertainty exerts a negative influence on firms' investment demand. The relationship is stronger for large firms than for small firms. Another result is that firm leverage also shows a negative relationship with interest rate uncertainty.     

Income distribution dynamics among Italian provinces. The role of Bank Foundations

This paper investigates the convergence process and the distribution dynamics of income among Italian NUTS-3 provinces between 2003 and 2011. Findings show the existence of multiple steady-state equilibria which is consistent with the well-documented persistence in income disparities among Italian provinces. The role of grant-making activities by Bank Foundations is assessed on a conditioning scheme. Results suggest that Bank Foundations can affect the shape of the distribution of income and, in the long run, reduce polarization with a tendency for income to collapse towards a unimodal distribution.     

A Schumpeterian model of investment and innovation with labor market regulation

Theoretical and empirical models provide ambiguous responses on the relationship between labor market regulation, innovation and investment. On the one hand, labor market regulation increases firms' adjustment costs and, ceteris paribus, decreases investment. But, on the other, it also stimulates firms to invest, innovate, increase productivity and profit in the long run. In this paper we present an endogenous growth model that describes the role of these opposite forces, and why a stricter labor market regulation may positively affect innovation and investment in the long run. Most of the theoretical and empirical results hold for Italy, Germany, France, and Spain.     

Asset restructuring strategies in bank acquisitions: Does distance between dealing partners matter?

One of the most lively-debated effects of banking acquisitions is the change in lending and asset allocation of the target bank in favour of transaction-based products, at the expense of small and informationally opaque borrowers. These changes may be the result of two distinct restructuring strategies pursued by the acquirer with respect to the asset portfolio of the acquired bank: a cleaning strategy (CS), in which the acquirer makes a clean sweep of all the negative net present value activities in the portfolio of the acquired bank, and a portfolio strategy (PS), in which the acquiring bank permanently changes the portfolio allocation of the acquired bank. In this paper we focus on Italian bank acquisitions and test which asset restructuring strategy was predominantly pursued over the period 1997–2003. Moreover, we distinguish acquisitions according to their geographic diversifying character and to the physical and cultural distances that separate acquiring from acquired banks. When we look at the mean value, we do not find clear evidence of a primacy either of CSs or PSs. When we separate in-market from out-of-market bank acquisitions, however, results show that the CSs prevail only in the former type of deals, while in the latter the portfolio of acquired banks is subject to PSs. Finally, we find that differences in asset restructuring strategies can be explained by differences in corporate culture and the workplace environment of the dealing partners.