Description
This text provides coherent theoretical and empirical analysis of firms’ investment and financing decisions. It assesses the role of uncertainty, financial imperfections, corporate governance and taxation using evidence derived from microeconomic data sets. Overall, the empirical results confirm theoretical precedents. Some firms are indeed financially constrained, for fixed investment as well as for R&D projects. The “free cash-flow” hypothesis holds, that is, managers divert excess funds away for their own interests, but less so in closely controlled companies. In accordance with the real option theory, the results suggest that uncertainty leads firms to adopt a “wait and see” strategy which eventually reduces investment, especially for irreversible investment. Corporate governance features are shown to affect managers, discipline and companies’ restructuring plans. Finally, different tax reforms are evaluated, and an alternative tax structure that would stimulate growth is proposed.
