Firm selection and corporate cash holdings

Since the early 1980s, the composition of US public firms has progressively shifted toward less profitable firms with high growth potential (Fama and French, 2004). We estimate a dynamic corporate finance model to quantify the role of this selection mechanism for the secular trend in cash holdings among US public firms. We find that an increase in the precautionary savings motive—primarily driven by the decline in initial profitability among R&D-intensive new lists—explains about 50% of the upward trend in cash holdings. This selection mechanism also explains part of the upward trend in sales growth volatility.     

Distributive trade and regional productivity growth

The paper aims to investigate the relationship between distributive trade (wholesale and retail trade) and productivity growth across Italian provinces. In most studies, the potential determinants of productivity in the distributive trade have been investigated, while the impact of these activities on economic growth of the whole system has received less attention. By using panel data during the time period 2000–2013, the paper tests if the increase in the share of employees in distributive trade over the given period has promoted the productivity growth. This study applies both a random-effects model and, among the dynamic panel data estimators, a generalized method of moments estimator (GMM). In order to control both the issue of endogeneity, due to the presence of some potentially endogenous variables among the explanatory variables, and the problem of instrument proliferation, the GMM estimator is implemented together with a statistical method, which reduces the number of instruments when the set of endogenous variables is wide. The findings show that the distributive trade has a strong positive impact on the productivity growth. Moreover, this link is reinforced when we control the potential endogeneity. The results also support the idea that distributive trade can promote provincial convergence.     

HORIZONTAL MERGERS: A SOLUTION OF THE INSIDERS' DILEMMA

We show that in a three‐firm infinitely repeated Cournot game, there exists a stick and carrot strategy equilibrium in which an exogenous bilateral horizontal merger is profitable and the incentive to remain out of the merger disappears. In this sub‐game perfect equilibrium, the merged entity produces the duopoly quantity and the outsider limits its production to half the duopoly quantity. Our stick and carrot strategy entails that the merged entity threatens to produce twice the triopoly quantity for two periods if the outsider does not produce half the duopoly quantity. In this equilibrium, the aggregate price remains high enough to make the merger profitable for the insiders. Also, the quantity produced by the outsider is sufficiently low to eliminate the difference between the profit of the outsider and the merging firm.     

Exploring additional determinants of fixed broadband adoption: policy implications for narrowing the broadband demand gap

Using data from the survey ‘Aspects of daily life’ conducted on Italian individuals in 2014 by the Italian Institute of Statistics, we propose new evidence on the factors that encourage the adoption of fixed broadband, a topic relevant for the reduction of the so-called broadband demand gap. We estimate a probit model through the two-step Heckman procedure for the selection bias, and find that, besides the already studied socio-demographic determinants, Internet-capable devices other than personal computers, as well as recreational (essentially video contents) and cloud-related uses of the Internet, have a relevant positive role. Policies aimed at fostering the diffusion of smart homes and more generally of the Internet of things at the residential level might be very effective in favouring fixed broadband adoption, provided that the network be neutral, not discriminating between data based on their contents and/or the destination device, and that possible foreclosing behaviours in the access to (premium) contents be properly and promptly addressed.     

Cash holdings,risk, and expected returns

In this paper I develop and empirically test a model that highlights how the correlation between cash flows and a source of aggregate risk affects a firm's optimal cash holding policy. In the model, riskier firms (i.e., firms with a higher correlation between cash flows and the aggregate shock) are more likely to use costly external funding to finance their growth option exercises and have higher optimal savings. This precautionary savings motive implies a positive relation between expected equity returns and cash holdings. In addition, this positive relation is stronger for firms with less valuable growth options. Using a data set of US pubic companies, I find evidence consistent with the model's predictions.     

DOES INITIAL ACCESS TO BANK LOANS PREDICT START‐UPS' FUTURE DEFAULT PROBABILITY? EVIDENCE FROM ITALY

In Europe, several countries have established public loan guarantee funds throughout direct/indirect loan programs to facilitate the access of SMEs and start‐ups to bank credit. This paper investigates whether start‐ups' level of access to bank loans during the early stage represents an imprinting factor with effects on the likelihood of survival once the firm reaches maturity. We rely on a firm‐level longitudinal data set of 49,111 Italian startups born from 2003 to 2005. Implementing a 2SLS regression analysis we show that the initial level of start‐up bank debt negatively influences the probability of default controlling for firm characteristics and performance. (JEL G21, M20, H32)     

Teaching an old dog a new trick: Reserve price and unverifiable quality in repeated procurement

This paper shows that, in a repeated competitive procurement, a buyer can use the reserve price in a low-price auction as a “public”—hence nondiscriminatory—incentive device to elicit unverifiable quality. We study a model with many firms and one buyer, who is imperfectly informed on the firms' costs. When firms are ex ante identical, the provision of quality is sustained by a sufficiently high reserve price to reward firms for the quality provision and by the threat of setting a low reserve price forever, if quality is not delivered. The buyer can elicit the desired level of unverifiable quality provided her baseline valuation of the project is not too high and the net benefit from unverifiable quality is not too low. These results are robust to firms' heterogeneity in their time preferences when the punishment for a deviation is finite but sufficiently long.