Does monetary policy have asymmetric effects? A look at the investment decisions of Italian firms

This paper studies the effects of monetary policy on the investment behaviour of various categories of Italian firms, using a panel from the Company Accounts Data Service (Centrale dei Bilanci). The exercise aims to shed light on the quantitative importance of a channel of transmission operating through balance sheets. Financial variables matter (when defined as either cash flow or the stock of liquidity); small firms and firms which have a larger share of assets that cannot be used as collateral are more affected by monetary policy. In quantitative terms, the difference in the response of investment by different types of firms turns out not to be negligible; however, the implications of this finding for transmission asymmetries across euro-area countries should not be overemphasized. Our main policy conclusion is that monitoring the financial conditions of different types of firms is important in order to assess the overall monetary stance.investment, monetary transmission, user cost of capital

FIRM SIZE DISTRIBUTION: DO FINANCIAL CONSTRAINTS EXPLAIN IT ALL? EVIDENCE FROM SURVEY DATA

We address the question in the title using survey-based measures of financial constraints, as opposed to the proxies typically used in the literature. We find that in our dataset of Italian firms, those declaring to be financially constrained are smaller and younger than the others. However, the size distribution of non constrained firms is significantly skewed, and virtually overlaps with the FSD for the entire sample. Similar conclusions are drawn from the analysis of a large subsample comprising very young firms. These results are broadly confirmed using several non survey-based proxies of financial constraints, and over a second large sample including firms from OECD and non OECD countries. The analysis of the latter dataset suggests that financial constraints are a relatively more serious problem in developing countries. We conclude that financial constraints cannot be the main determinant of the FSD evolution over time, especially in financially developed economies.firm size distribution, financial constraints.

Does monetary policy have asymmetric effects? A look at the investment decisions of Italian firms

This paper studies the effects of monetary policy on the investment behaviour of various categories of Italian firms, using a panel from the Company Accounts Data Service (Centrale dei Bilanci). The exercise aims to shed light on the quantitative importance of a channel of transmission operating through balance sheets. Financial variables matter (when defined as either cash flow or the stock of liquidity); small firms and firms which have a larger share of assets that cannot be used as collateral are more affected by monetary policy. In quantitative terms, the difference in the response of investment by different types of firms turns out not to be negligible; however, the implications of this finding for transmission asymmetries across euro-area countries should not be overemphasized. Our main policy conclusion is that monitoring the financial conditions of different types of firms is important in order to assess the overall monetary stance JEL Classification: E22, E50Investment, monetary transmission, user cost of capital

The Causes and Consequences of Venture Capital Financing. An Analysis based on a Sample of Italian Firms

The analysis of the determinants and the effects on firm performance of venture capital finance for a sample of Italian enterprises indicates that small, young and more innovative firms are more likely to be financed by a venture capitalist. Our results confirm that venture capital can help reduce financial constraints for firms that are more difficult for external investors to evaluate. We also show that larger firms resort to venture capitalists when their indebtedness with banks is high and we find evidence that venture capital financing is more frequent after periods of high growth and investment, a result that points to the advisory role of the venture capitalist. A novel result emerges; venture capital also finances firms with multiple banking relationships. In the presence of multiple lending, banks could have greater difficulty monitoring firms with asymmetric information; moreover, if firms default, banks are likely to have a weaker bargaining position. In these cases, the amount of bank credit is probably near its limit and firms need to resort to venture capital, a contract that reduces the amount of guarantees needed to access external finance.Venture capital, Private equity

Firm investment and monetary policy transmission in the Euro Area

This paper presents a comparable set of results on the monetary transmission channels on firm investment (the interest rate channel and the broad credit channel) for the four largest euro-areacountries (Germany, France, Italy and Spain), using particularly rich micro datasets for eachcountry containing over 215,000 observations from 1985 to 1999. For each of those countries,investment relationships are estimated explaining investment by its user cost, sales and cash flow.A first result is that investment is sensitive to user cost changes in all those four countries. Thisimplies an operative interest channel in these euro-area countries. A second result is that investmentin all countries is quite sensitive to cash flow movements. However, only in Italy do smaller firmsreact more to cash flow movements than large firms, implying that a broad credit channel might notbe equally pervasive in all countries.Investment, Monetary Transmission Channels, User Cost of Capital

Firm Investment and Monetary Policy Transmission in the Euro Area

We present a comparable set of results on the monetary transmission channels on firm investment for the four largest euro-area countries (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned about the interest channel and the broad credit channel. For each of those countries, we estimate neoclassical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro-area countries. We also find investment in all countries to be quite sensitive to cash flow movements. However, only in Italy do smaller firms react more to cash flow movements than large firms, implying that a broad credit channel might not be equally pervasive in all countries. -- In einer vergleichenden Betrachtung untersuchen wir die Kanäle monetärer Transmission bezüglich des einzelwirtschaftlichen Investitionsverhaltens in den vier größten Ländern des Euro-Währungsraums (Deutschland, Frankreich, Italien und Spanien). Bei unserer Untersuchung des Zinskanals und des Kreditkanals können wir auf ausgesprochen reiche Datensätze mit insgesamt 215.000 Beobachtungen zurückgreifen. Für jedes dieser Länder schätzen wir neoklassische Investitionsgleichungen, bei denen das Investitionsverhalten durch die Kapitalnutzungskosten, den Absatz und den cash flow erklärt werden. In allen vier Ländern reagiert das Investitionsverhalten auf Änderungen der Kapitalnutzungskosten. Dies zeigt die Wirksamkeit eines Zinskanals in diesen Ländern. Weiterhin erweist sich in allen Ländern der betriebliche cash flow als wichtige Determinante für das Investitionsverhalten. Allerdings reagieren nur in Italien kleine Firmen stärker auf Änderungen des cash flows als große Firmen. Dies läßt darauf schließen, daß der Kreditkanal der monetären Transmission nicht in allen Ländern von gleicher Bedeutung ist.Investition,Monetäre Transmission,Kapitalnutzungskosten,investment,monetary transmission,user cost of capital

Firm Investment and Monetary Policy Transmission in the Euro Area

We present a comparable set of results on the monetary transmission channels on firm investment for the four largest euro-area countries (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned about the interest channel and the broad credit channel. For each of those countries, we estimate neo-classical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro-area countries. We also find investment in all countries to be quite sensitive to cash flow movements. However, only in Italy do smaller firms react more to cash flow movements than large firms, implying that a broad credit channel might not be equally pervasive in all countries.investment, monetary transmission, user cost of capital

New Findings on Firm Investment and Monetary Policy Transmission in the Euro Area

In this paper we present comparable results on the determinants of firms' investment and their link to monetary policy. The results have been obtained by the Eurosystem Monetary Transmission Network. This network has produced a series of papers in which the use of micro data permits estimating and quantifying the relevance of two channels of monetary policy transmission: the nterest rate and the broad credit channel. The research findings provide evidence of an operative interest rate channel in all countries examined. Moreover, the results indicate that variables which proxy firms' financial conditions play a role. Firms characterised by weaker balance sheetsshow higher liquidity sensitivity.investment, monetary transmission, user cost of capital

Firm investment and monetary transmission in the euro area

We present a comparable set of results on the monetary transmission channels on firm investment for the four largest countries of the euro area (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned on the interest channel and broad credit channel. For each of those countries we estimate neo-classical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro area countries. We also find investment in all those countries to be quite sensitive to cash flow movements. However we find that only in Italy smaller firms react more to cash flow movements, implying that a broad credit channel might not be as pervasive in all countries JEL Classification: E22, E50Investment, monetary transmission channels, user cost of capital

Lessons learned from the financial crisis for financial stability and banking supervision

The financial crisis that began in 2007 has revealed a need for a new supervisory and regulatory approach aimed at strengthening the system and containing the risk of future financial and economic disruptions. Three ingredients are needed to ensure financial stability: robust analysis, better regulation, and international cooperation. First, financial stability analysis must be improved to take full account of the different sources of systemic risk. Data coverage of the balance sheets of both non-bank financial institutions and the non-financial sectors should be increased. Moreover, to address the problems raised by the interconnections among financial institutions more granular and timely information on their exposures is needed. There must be further integration of macro- and micro-information and an upgrading of financial stability models. The second ingredient is the design of robust regulatory measures. Under the auspices of the G20 and the Financial Stability Board, the Basel Committee on Banking Supervision recently put forward substantial proposals on capital and liquidity. They will result in more robust capital base, lower leverage, less cyclical capital rules and better control of liquidity risk. Finally, the third ingredient is strong international cooperation. Ensuring more effective exchanges of information among supervisors in different jurisdictions and successful common actions is key in preserving financial integration, while avoiding negative cross-border spill-overs. Better resolution regimes are part of the efforts to ensure that the crisis of one institution does not impair the ability of the financial markets to provide essential services to the economy.financial crisis, international cooperation, macroprudential analysis, procyclicality, prudential regulation, stress tests