Financial Flexibility Across the Euro Area and the UK

75 Pages Posted: 11 Feb 2014

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 20, 2014

Abstract

We use a large database of more than 685,000 European firms to show that financial flexibility attained through conservative leverage policies is more important for private, small, medium-sized and young firms and for firms in countries with lower access to credit and weaker investor protection. Further, using the recent financial crisis as a natural experiment, we show that financial flexibility status allows companies to reduce the negative impact of liquidity shocks on their investment decisions. Our findings support the hypothesis that financial flexibility relates to companies’ ability to undertake future investment, despite market frictions hampering possible profitable 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 Across the Euro Area and the UK (January 20, 2014). ECB Working Paper No. 1630. Available at SSRN: https://ssrn.com/abstract=2381833

Annalisa Ferrando (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Maria‐Teresa Marchica

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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