Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153076
Authors: 
Pál, Rozália
Ferrando, Annalisa
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 642
Abstract: 
This paper investigates the financing conditions of non-financial corporations in the euro area. We develop a new firm classification based on micro data by distinguishing between three groups of firms: unconstrained, relatively and absolutely constrained firms. We also provide further evidence on the sources of the correlation between corporate cash flow and cash savings by conducting the analysis in a dynamic framework. Contrary to previous evidence based mainly on US firms, our results suggest that the propensity to save cash out of cash flows is significantly positive regardless of firms' financing conditions. This implies that even for firms with favourable external financing conditions, the internal cash flow is used in a systematic pattern for the inter-temporal allocation of capital. The results also indicate that the cash flow sensitivity of cash holdings cannot be used for testing financing constraints of euro area firms.
Subjects: 
cash policy decisions
financing conditions
JEL: 
D92
G3
G32
Document Type: 
Working Paper

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