Financing Constraints and Firms' Cash Policy in the Euro Area

This paper investigates the financing conditions of non-financial corporations in theeuro area. We develop a new firm classification based on micro data by distinguishingbetween three groups of firms: unconstrained, relatively and absolutely constrainedfirms. We also provide further evidence on the sources of the correlation between cor-porate cash °ow and cash savings by conducting the analysis in a dynamic framework.Contrary to previous evidence based mainly on US firms, our results suggest that thepropensity to save cash out of cash flows is signficantly positive regardless of fims'fi-nancing conditions...