Financial Flexibility and Investment Ability Across the Euro Area and the UK

60 Pages Posted: 9 Apr 2013 Last revised: 16 Feb 2016

See all articles by Annalisa Ferrando

Annalisa Ferrando

European Central Bank (ECB)

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School

Roberto Mura

University of Manchester - Manchester Business School

Multiple version iconThere are 3 versions of this paper

Date Written: January 9, 2016

Abstract

We use a very large sample of European private and public firms to show that financial flexibility attained through a conservative leverage policy is more important for private, small-medium-sized, and young firms and for firms in countries with less access to credit and weaker investor protection. Further, using the 2007 financial crisis as a natural experiment, we show that a higher degree of financial flexibility allows firms to reduce the negative impact of liquidity shocks on investment. Our findings support the hypothesis that financial flexibility improves companies’ ability to undertake future investment, despite market frictions hampering possible growth opportunities.

Keywords: low leverage, financial flexibility, investment, cross-country analysis

JEL Classification: G31, G32, D92

Suggested Citation

Ferrando, Annalisa and Marchica, Maria‐Teresa and Mura, Roberto, Financial Flexibility and Investment Ability Across the Euro Area and the UK (January 9, 2016). Available at SSRN: https://ssrn.com/abstract=2246581 or http://dx.doi.org/10.2139/ssrn.2246581

Annalisa Ferrando

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Maria‐Teresa Marchica (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Roberto Mura

University of Manchester - Manchester Business School ( email )

Crawford House
Oxford Road
Manchester, Lancashire M13 9PL
United Kingdom
+44 (0) 161 275 4023 (Fax)

HOME PAGE: http://www.robertomura.com

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