Financing constraints on the size distribution of industrial firms: the Chinese experience

We investigate whether financing constraints affect the size distribution of Chinese industrial firms from 1998 to 2007. Although the firm size distribution does not follow Zipf distribution in China, it is approaching Zipf distribution over time. In general, financing constraints have a robustly negative effect on the size distribution of firms. Furthermore, firms in Western China grow significantly more equally after controlling for financing constraints. However, the effect of financing constraints in Central China is significantly negative, and the effect of financing constraints on firm size distribution in Eastern China is insignificant. We thus expect a non-linear relationship between financing constraints and firm size distribution.     

Technical efficiency and ICT investment in Italian manufacturing firms

The importance of Information and Communication Technologies (ICTs) is a much debated question with extensive literature aimed at understanding the role of ICTs in increasing economic growth, firm productivity and firm efficiency. Different methods to estimate firm efficiency are used in this study. In particular, both the translog and the Cobb–Douglas production functions are used in order to estimate the impact of ICT on Technical Efficiency (TE) in Italian manufacturing firms over the period 1995 to 2003. Results show that ICT investments positively and significantly affected firms’ TE. Moreover, group, size and geographical position have a positive influence on TE. Finally, the results show that older firms are, on average, more efficient than newer ones.     

Uncertainty and investment evidence from a panel of Chinese firms

Using data from various Chinese companies for the period 1994–2005 and applying GMM (System) technique, we report some stylized facts regarding the link between uncertainty and investment, where uncertainty is measured as the volatility of daily stock market returns. Controlling for the short- and long-run investment dynamics, we discover important effects of measured uncertainty on firm-level investment. Our study consistently indicates a positive and statistically significant effect of uncertainty on the company investment. Further more the macroeconomic and firm-specific components of uncertainty also have a significant positive effect on their own. Higher risk perception leading to higher investment, and in turn stronger aspirations of reinvestment.     

The effects of agglomeration economies on technical efficiency of manufacturing firms: evidence from Indonesia

This article examines the effects of agglomeration economies and industrial structure upon firm-level technical efficiency in the Indonesian manufacturing industry over the period 2004–2009. A stochastic production frontier and three channels of agglomeration economies consisting of specialization, diversity and competition are used. The empirical results show that the effects of specialization and diversity upon firm-level technical efficiency are positive and negative, respectively, indicating that specialization is more favourable than diversity for stimulating firms’ technical efficiency. Competition has a positive sign, showing that region with high levels of competition tend to be more conducive in accelerating firm-level technical efficiency. In terms of firm location, both dummy for urban region and industrial complex turn out to be positive, indicating that firms located in both areas are experienced higher technical efficiency. Both firm size and age also have positive effect upon technical efficiency.     

Patents, firm size and financial constraints: an empirical analysis for a panel of Italian manufacturing firms

The paper empirically investigates the issue of financial constraintsto investment, focusing on its relationship with innovationactivities. The study is based on the analysis of a cross-industriespanel of 804 Italian companies, observed through the years 1995–2000.The main objective of the study is to highlight whether thereare financial determinants underlying the strong bias of patentingactivity towards larger companies in the Italian economy. Byapplying a dynamic panel analysis, we found that only the firmsshowing lower financial constraints are able to keep a sustainedpatenting profile through time. Our evidence suggests the existenceof an imperfect capital market in the Italian economy, particularlyin the case of medium-sized companies, which tend to delay inefficientlythe start of in-house R&D activities.     

An analysis of the impact of unionization on efficiency: evidence from a meta-frontier analysis

This article examines the impact of unions on the efficiency of establishments in the manufacturing industry by comparing the results from two different empirical strategies: stochastic frontier analysis (SFA) and meta-frontier analysis (MFA). While SFA concludes that union establishments show higher technological efficiency, the results are the opposite when estimating production functions with MFA. In SFA, unionized establishments appear to be more efficient because they remain closer to their own production frontier; however, in MFA – where groups with heterogeneous technology can be compared – we find that nonunionized establishments are more efficient because they are closer to the meta-frontier than their unionized counterparts.     

Valuing investment projects under interest rate risk: empirical evidence from European firms

In this article, we perform an empirical investigation of the effect of the interest rate uncertainty on the valuation of investment projects. The analysis is carried out by employing a real option approach and by considering a set of firms that operate in various production sectors in the euro area. In particular, the revenues generated by the investment projects are modelled using a geometric Brownian motion, whereas the interest rate is specified as a stochastic process of Vasicek type. Moreover, using the volatility of the equity return as a proxy, the volatility of the revenues is calibrated to real firm data, while the parameters of the interest rate model are estimated by fitting the Euribor time series. To this aim, an ad hoc calibration procedure is developed which is based on the maximum likelihood principle and thus has the merit of being simple, fast and suitable for practical purposes. Our study reveals that the interest rate uncertainty reduces the valuation of investment projects. However, stochastic interest rates do not provide a substantial improvement with respect to constant interest rates, or at least the differences are not statistically significant.     

Public sector efficiency in transition and beyond: evidence from Czech local governments

This article provides the first comparison of public sector efficiency in and beyond transition. We compare the comprehensive efficiency scores of 202 local governments in the Czech Republic in the transition period of 1995–1998 and the post-transition period of 2005–2008 and identify the period-specific determinants of local government efficiency. We observe convergence to the best practice frontier but also a growing efficiency gap between small and large governments. In both periods, municipal size and the main fiscal variables qualitatively affect efficiency in the same direction and in line with the fiscal stress hypothesis. Left-wing ideology is only robustly associated with cost inefficiency in the transition period. The geographic distances begin to matter for efficiency only in the post-transition period.     

Looking at the determinants of efficiency in banking: evidence from Italian mutual-cooperatives

Italy has experienced a restructuring and consolidation process in the banking industry since the 1990s that is expected to foster efficiency and competition. Despite the reforms, a peculiarity of the industry is the persistence of small mutual-cooperative banks (Banche di Credito Cooperativo, BCCs) active in narrow markets. The scope of this paper is to analyze the determinants of BCCs’ efficiency in the 2006–2011 period. In the first step of the study, a stochastic cost frontier is used to yield bank efficiency. Then the cost efficiency becomes the dependent variable of fixed and random effect models. The reference market of BCCs is the province (NUTS3). We find that BCC cost efficiency is positively affected by market concentration and demand density and inversely related to branching. Importantly, these results are robust to any sample restriction anchored to the distribution of efficiency. While the evidence regarding the credit quality is inconclusive for all BCCs, the sensitivity analysis shows that the risk in local markets is a source of BCC cost inefficiency.     

Exploring the relationship between CSR performance and financial constraints: empirical evidence from European firms

This paper investigates the relationship between corporate social responsibility (CSR) activities and financial constraints. Our panel dataset consists of 397 European companies listed in the STOXX Europe 600 during 2009–2014. The findings reveal that firms with higher CSR performance exhibit lower degree of financial constraints. In addition, the link between CSR performance and financial constraints is a fully mediated relationship. The negative effect of CSR performance on financial constraints follows the path through mitigating agency conflicts of free cash flow and information asymmetry. The findings suggest that one mechanism linking CSR performance and financial constraints is a reduction of capital-market imperfections.     

Inventory investment and financial constraints in the Italian manufacturing industry: A panel data GMM approach

Three large unbalanced panels of Italian manufacturing firms observed over the period 1991–2009 are employed to assess, by means of a dynamic GMM approach, whether the existence of financial frictions is suitable to explain deviations of inventories from their long-run path. A negative response of inventory investment to the presence of financial burdens might provide evidence of a significant role played by the financial framework in conditioning the real side of the economy, especially during recession years, when liquidity problems arise. The negative effect is found over the entire analyzed period, with firms' dimensional aspects accounting more than risk characteristics to explain the phenomenon, but the inclusion of recessionary dummies into the model leads to controversial and puzzling results. A significant recessionary effect is found during the Nineties, accounting for inventories being more sensitive to financial frictions during the main recessionary peaks, 1993 and 1996. The result is not confirmed by the most recent estimates, especially the ones referring to the 2008–2009 recessionary shock, whose effects are investigated for the first time by a paper addressing the inventory investment–financial constraints subject. Alternative hypothesis for the proposed results have been tested on data. Firms were found to rely on inventory decumulation to a lesser extent compared to the past, to generate internal financing. More specifically, disinvestments in financial assets were found to represent, as a matter of fact, one of the main drivers adopted to ease liquidity tensions: a negative and strongly significant relationship with inventory investment was detected, after controlling for short-run liquidity constraints at firm level. By contrast, only a weak negative relationship was established with fixed capital during the same recessionary biennium.     

Mergers and innovation: evidence from a panel of US firms*

Mergers lead to larger firms and a less competitive market structure, but their effects on innovation are not clear. Mergers may improve innovation incentives by promoting economies of scope and scale, R&D activities, and increasing the ability to deal with uncertainties. However, mergers may also discourage innovation by reducing competition, increasing costs, and decreasing production and R&D efficiencies. In this study, we investigate merger impacts on innovation using a panel data consisting of four different data sets on publicly traded US manufacturing firms from 1980 to 2003. Our proxy for innovation is based on citation-weighted patent stocks. In our estimation model, we control for endogeneity using instrumental variables and factors such as market share, size, industry, and time. We find that mergers are positively and significantly correlated with firms’ innovation. Our findings also indicate that merger effect on innovation is heterogeneous across industries, increases with market share, and is greater in the long run. Our findings are robust to alternative measures of innovation.     

Financing preferences: evidence from the Korean market

We investigate the financing decisions of Korean firms during the period of 1996–2015. Korean firms follow a matching strategy for funding their cash needs. Cash inflows from investing activities are the primary source of funding for capital expenditures, and cash inflows from financing activities are the major means of covering cash outflows from financing activities. We also find that Korean firms’ financing practice of handling cash deficits can be described by the pecking order model modified and augmented by cash flow variables. Cash inflows from investing activities account for the major portion of financing to make up for cash deficits, followed by short- and long-term debt, and then equity financing.     

Technological progress and scientific indicators: a panel data analysis

Total factor productivity (TFP) is generally interpreted to be a proxy for technological advancement. In this paper, we use stochastic frontier analysis to decompose the growth in TFP into three components: technological progress, scale effect and change in technical efficiency. Then, we conduct a comprehensive panel data analysis using the technological progress component of the TFP growth and several scientific and technological indicators using data from 160 countries over the period from 1960 to 2009. Our results generally show that the technological progress component of the TFP growth properly reflects certain dimensions of actual scientific and technological progress. However, we also find that this result is somewhat sensitive to different econometric specifications and assumptions.     

Political connections and labor investment efficiency: Evidence from China's private firms

This study investigates whether political connections affect labor investment efficiency. We test this question in the context of China's private firms, where we find that political connections are negatively associated with labor investment efficiency. We also explore the channels through which political connections reduce labor investment efficiency and provide evidence that political connections aggravate both agency problems and information asymmetry. Further tests show that the influence of political connections is more pronounced for firms with overinvestment problems or high-level political connections, and for firms from regions facing severe unemployment or loose anticorruption. Overall, our results are consistent with the “grabbing hand” argument that politicians destroy firm operational efficiency.     

Determinants of bank cost efficiency in transition economies: evidence for Latin America,Central and Eastern Europe and South-East Asia

In this study, we adopt Wang’s (2002) heteroscedastic stochastic frontier model, which allows us to investigate bank cost efficiency and to measure the marginal effects of some variables on both the level and the variability of inefficiency. In recent years, the financial crisis has significantly affected the banking systems of the transition countries. Hence, the efficiency is of major importance for the stability of the banks. Regarding the determinants of efficiency, we find evidence that banks that follow a more cautious strategy, characterized by lower risk appetite and average expectations on profitability, have higher cost efficiency. We also find that traditional deposit-taking and loan-making still remain the most efficient activity of the banks. Additionally, the results showed that a higher Gross Domestic Product growth rate implies an increase in the inefficiency level, indicating an unsustainable bank management behaviour, which in periods of economic growth adopts policies that can generate inefficiency in order to gain market share and to obtain higher bonuses. Country cost efficiency results show significant differences. The banking systems in transition countries in South Eastern Asia appear to have a higher cost efficiency level. Also, the effects of the financial crisis were less significant in this region.     

Finance constraints and technology spillovers from foreign to domestic firms

Scholars have suggested that externalities such as technology spillovers to domestic firms from the entry and presence of foreign firms – i.e., Foreign Direct Investment (FDI) spillovers – arise only when domestic firms possess adequate absorptive capacity. But they have also maintained a predominantly technological focus in their conceptualization of absorptive capacity, treating it mostly as a function of domestic firms' technological investments. Yet, several anecdotes point to finance constraints being equally important hurdles to absorbing technology. Given the comparatively scant attention to finance constraints in the FDI spillover literature, we present theoretical arguments and a counterfactual simulation for how finance constraints influence firms' realization of FDI spillovers. In the process, we identify two mechanisms underlying why firms facing high finance constraints experience lower FDI spillovers. (125 words).     

Technical efficiency of Spanish manufacturing firms: a panel data approach

This paper estimates the levels of technical efficiency reached by Spanish manufacturing firms, through an econometric estimation of frontier production functions for fifteen sectors of activity, and also, obtains other relevant technological measurements of these productive processes such as the scale and the technical progress parameters. The methodology used is the panel data methods (Schmidt and Sickles, 1984). The statistical source is provided by the Survey on Business Strategies (Encuesta Sobre Estrategias Empresariales), a panel of data covering 855 Spanish manufacturing firms observed over the period 1990-1994. Our econometric results confirm the great heterogeneity in the firms' efficiency, the predominance of constant returns to scale and the great rate of technological progress.     

Foreign direct investment and domestic investment in the host country: evidence from panel study

This article examines the impact of inward Foreign Direct Investment (FDI) on host countries’ domestic investment. Utilizing data from 50 countries over the period of 1970 to 2004, we find that inward FDI has a negative contemporaneous effect on domestic investment, while the cumulative effect of FDI over time tends to be positive. In addition, we separately study FDI in Developed Countries (DCs) and Less Developed Countries (LDCs). The effect of contemporaneous FDI on domestic investment is negative in DCs, and the cumulative effect of FDI is neutral. Strong evidence suggests that the contemporaneous effect of FDI on domestic investment is neutral in LDCs, while the cumulative effect of FDI is positive.     

Informality and credit constraints: evidence from Sub-Saharan African MSEs

The attributes of micro and small enterprises (MSEs) influencing access to credit, in particular the level and role of firm informality, are analysed in the article. The puzzle is the push for MSEs to join the formal sector and the tug to avoid the extra burden it places on the firm. It is important to know more clearly what forces are at work and the sources of the causal effects. This study uses data from the World Bank Enterprise Surveys for five low-income countries (LICs) in Sub-Saharan Africa. The method is empirical and as we find informality to be endogenous to credit constraints, an instrumental variable approach is estimated. Further, to address the possibility of reverse causality, an instrument for the informality variable is required; not registered with Inland Revenue (tax office) is the chosen instrument variable. The findings reveal that as the probability of a firm operating in the formal sector increases, there is greater access to external credit. The causality relationships are tested providing a strong platform for the formalization of polices to reduce the informality of the MSE sector. These are discussed in the context of the research findings.