FIRMS’ FINANCIAL STRUCTURE AND REAL DECISIONS: A CRITICAL SURVEY OF THE EMPIRICAL LITERATURE

Theoretical literature suggests that firms’ financial structure affects their real decisions because of capital markets imperfections. Several empirical studies have been conducted to test this hypothesis. This survey illustrates the main results of this literature focusing on the effects of capital markets imperfections on firms’ real decisions: fixed capital investments, R&D investments, inventory investments, labour demand and profit margins determination. Unlike previous surveys on this topic, this paper includes empirical evidence on Italian firms and discusses recent contributions supporting the “managerial discretion theory” as an alternative explanation of the positive relationship between investments and financial variabiles.