Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154063
Authors: 
Ferrando, Annalisa
Marchica, Maria-Teresa
Mura, Roberto
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1630
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.
Subjects: 
cross-country analysis
financial flexibility
investment
low leverage
JEL: 
G31
G32
D92
Document Type: 
Working Paper

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