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Scale Economies and Heterogeneity in Business Money Demand : The Italian Experience


Reference:

Ganugi, P., Grossi, L. and Ianulardo, G., 2009. Scale Economies and Heterogeneity in Business Money Demand : The Italian Experience. Working Paper. Bath, U. K.: Department of Economics, University of Bath. (Bath Economics Research Working Papers; 17/09)

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    Official URL:

    http://www.bath.ac.uk/economics/research/working-papers

    Abstract

    This paper investigates the demand for money by firms and the existence of economies of scales in order to evaluate the efficiency in the cash management of the Italian manufacturing industry. We estimate a money demand for cash elaborated by Fujiki and Mulligan (1996). Estimates differ from the previous literature firstly, because we use a choice dynamic model to overcome endogeneity problems in cash holdings; secondly, because we use an iterative procedure based on backward exclusion of firms from model estimation with which we point out the high heterogeneity of Italian companies in money demand. Our estimates show that the Italian Manufacturing industry, considered as whole, does not enjoy scale economies in money demand. Our iterative procedure points out that the cause of this result is to be ascribed to small firms which are characterized by thin cash money holdings and a consequently very modest opportunity cost. Once small size firms are removed from our data set our estimates reveal that money demand of medium and large size firms is different for high scale economies. This result, together with the fact that small firms’ cash balances are thin, implies the efficiency of Italian manufacturing industry.

    Details

    Item Type Reports/Papers (Working Paper)
    CreatorsGanugi, P., Grossi, L. and Ianulardo, G.
    DepartmentsFaculty of Humanities & Social Sciences > Economics
    Research CentresBath Economics Research
    RefereedNo
    StatusUnpublished
    ID Code15962

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