Marenzi A., Pagani L. (2003).

The financial choices of italian firms. Politica Economica vol. 2, pp. 223-248.



This paper studies the variables influencing the financing decisions of a sample of Italian firms. Using balance sheets of a sample of about 25.000 Italian firms, we construct a data set which allows us to evaluate which variables influence the probability to choose among different financing instruments. We estimate a multinomial logit model in which the values of the dependent variable correspond to alternative form of financial choice, with particular emphasis on the choice between financial debt and equity. In line with the standard empirical literature, we study the impact of variables representing the problem of asymmetric information between managers and shareholders and between firm and capital market, of non-debt tax shields (NDTS) and of financial distress cost. In order to consider the lower financial development and the greater imperfection of capital market in southern Italy, we enter a dummy variable to control for the impact of firms’ geographical residence. The estimation reveals that in general Italian firms behave accordingly to the predictions of economic theory regarding firms’ financial decisions.