Academic journal article Global Journal of Business Research

Corporate Financing and Business Demography in Italy

Academic journal article Global Journal of Business Research

Corporate Financing and Business Demography in Italy

Article excerpt

ABSTRACT

Recently, world financial markets were in the midst of a credit crisis of historic breadth and depth. The crisis had significant impact on the corporate sector. Many firms encountered difficulties surviving and adopting correct strategies. This research provides a picture of Italian industrial and service firms in the period 2007-2010. We highlight principal economic characteristics and focus attention on corporate financing. Second, the paper studies business demography and describes the survival of the Italian corporate system. The research uses data published by the Bank of Italy concerning a survey on Italian Industrial and Service Firms in 201. The data is an elaboration of data published by Infocamere in the period 1995-2009. The study uses a multi-disciplinary approach.

JEL: G01, G30, J11

KEYWORDS: Italian Firms, Corporate Financing, Business Demography

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Italian firms were seriously affected by the financial crisis of 2007. Different types of businesses felt the effects of the crisis. Their survival has been questioned. The resulting excessive mortality of firms is a serious risk for the Italian economy.

This research studies Italian firms from two points of view. Firstly, it provides a picture of Italian industrial and service firms. We highlight the principal economic characteristics (labor, capital and output, ownership, organization and governance) and focus attention on some aspects of corporate financing (bank debt). Secondly, it examines the growth of Italian firms by studying the quantitative change undergone by the Italian industry over the last fifteen years. This approach provides a method for the evaluation of services and results a crucial tool for supporting political decisions.

The Bank of Italy publishes data concernig a survey on Italian Industrial and Service Firms in 2010. The sample consists of 2,809 industrial firms, 504 construction companies and 1,128 non-financial private service firms. Data are collected by Infocamere and present the demographic structure of firms from 1995 to 2010. From this, it is possible to have a complete vision of Italian firm's demography and of their survival.

The remainder of the paper is organized as follows. The first section provides a review of the dynamics of Italian firms, the second section describes data and methodology used and the following section presents the empirical results. The last Section concludes the paper.

LITERATURE REVIEW

The first part of the research focuses on the period 2007-2010. This period is characterized by a deep financial crisis. This crisis is of such proportions that even important initiatives to face the problem have so far been insufficient to resolve it. An analysis of phases and causes of this "colossal failure" that has put "the entire financial system at risk" (Woellert and Kopecki, 2008) is fundamental to understand the current situation of Italian firms and their survival.

The financial crisis originated in the segment of subprime mortgage and structured products (Greenlaw et al., 2008). By the end of 2006, growth in house prices in the United States (US) stopped abruptly reflecting the rise in official interest rates and a slowing economy. At the beginning of 2007, subprime mortgages started to show high rates of default following the increase in debt service (Chomsisengphet and Pennington-Cross, 2006; Doms et al., 2007). This financial crisis represented the worst crisis since the Great Depression of the 1930s (Sinn, 2009). The crisis contributed to the failure of many companies, led to a substantial decline in consumer wealth, produced enormous financial commitments incurred by governments, and resulted in a strong decline in economic activity. The severity of the crises became clear with the bankruptcy of Lehman Brothers and the near-bankruptcy of American International Group in September 2008. …

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