Is the Italian Government effective in relaxing the financial constraints of high technology firms?


By Massimo G. Colombo

The present work analyses the effect of public finance on firm investments in a longitudinal sample of 293 Italian unlisted owner-managed, new technology-based firms (NTBFs), observed over a 10-year period from 1994 to 2003. We find that large, old NTBFs and those located in the north of Italy are not financially constrained, while small, young NTBFs and those located in the south of Italy rely significantly on internal capital to finance their investments. Public finance may play a prominent role for these latter firms. Indeed, empirical evidence shows that receipt of public subsidies by financially constrained NTBFs results in a reduction of investment–cash flow sensitivity in the long run. We interpret these results as an indication of the relaxation of financial constraints. Moreover, we find that, after receiving public finance, young and small firms increase their investment rate while NTBFs located in the southern regions do not. Nonetheless, small and young NTBFs benefit greatly from public intervention, but are less likely to obtain public support than their larger and older peers. Italian policy measures have also paid particular attention to NTBFs located in the south of Italy, but we find that public finance has no effect on the investment rate for southern NTBFs. This evidence raises some doubts about the overall efficacy of Italian governmental intervention in this domain.

page: 73 – 96
Prometheus: Critical Studies in Innovation
Volume 30, Issue 1

SKU: 0810-9028673757

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