Sources of finance for European investment (download PDF368 Kb)

Alex Cobham

Abstract
This paper assesses the different patterns of investment finance in the main EMU member economies – France, Germany, Italy and Spain. Aggregated balance sheet data are used to analyse the net sources of finance (following Mayer, 1988) for firms of different sizes. The main finding that emerges is the importance of long-term debt as a source of investment finance for small and medium-sized firms, and its reduction in the later part of the 1990s. While large firms have benefited from the creation of a pan-European pool of capital in terms of greater access to debt, the evidence suggests that smaller firms are losing out – with potentially damaging effects for their investment and hence European employment and growth prospects.

JEL Classification: G31, G32, L16, G11; G19.

Keywords : corporate investment; cost of capital; EMU; small and medium-sized firm