Working Paper: CEPR ID: DP17275
Authors: Giorgio Barba Navaretti; Anna Rosso
Abstract: This paper examines whether access to the capital market of convertible and non-convertible bonds affects total factor productivity (TFP) for the population of Italian joint stock manufacturing companies, based in highly segmented local financial markets, between 2007 and 2017. The hypothesis, well grounded in the literature, is that long term capital favours investment in intangibles and other risky assets necessary for productivity growth. In order to identify this effect, we exploit the exogenous shock of the Italian banking deregulation of the mid-Nineties as an instrument for firm level access to capital, interacted with distance from logistic networks. These reforms changed the distribution of the type of branches at the local level, increasing the share of joint stock banks, which have high connections to international capital markets. This geographical reallocation of banking activities ultimately affected firms’ financial structure, favouring their access to capital, even when based in peripheral financial areas. Firms which issued instruments of market debt achieved higher levels of productivity and a higher probability to reach top percentiles of productivity distribution.
Keywords: productivity; bank deregulation; regional development; capital markets
JEL Codes: R1; O4; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Italian banking deregulation of the mid-1990s (G21) | firm-level access to capital (G32) |
| firm-level access to capital (G32) | firm productivity (TFP) (D24) |
| firm-level access to capital (G32) | probability of moving to higher percentiles of productivity distribution (D29) |
| simulated growth of bank branches and firm's distance from logistics hubs (R32) | firm-level access to capital (G32) |