Ownership structure, internal financing and investment dynamics

In this paper, using a sample of 1035 Italian manufacturing firms observed in the period 1998–2003, we try to disentangle the different potential determinants underlying the observed positive elasticity between investments and internal resources by accounting for both the ownership structure of the companies and the role played by financial intermediaries as both investors and debt-holders. The most interesting result emerging from our analysis is related to the presence of an inverted U relationship between concentration of ownership and the elasticity of investment to cash flow.Moreover, we find that the relationship between investment decisions and internal funds seems to be significantly influenced by monitoring efforts played by institutional investors.