Corporate Financing in the Deleveraging Era

Abstract Our analysis focuses on understanding the financing behaviour of Italian firms during a period marked by a significant economic crisis and the resulting deleveraging process. The objective is to identify the determinants of Italian firms’ leverage decisions during this deleveraging phase and to assess whether their financing behaviour is more consistent with the predictions of the Pecking Order Theory (PO) or the Trade-Off Theory (TO). We consider the main determinants identified in the literature when selecting the independent variables, to control for factors that may simultaneously influence leverage. The analysis is based on a large longitudinal micro-dataset provided by the Italian National Statistical Institute, covering the years 2008–2015, and employs a Generalized Method of Moments (GMM) approach. The GMM estimations were performed both on the full sample and on various subpopulations. The results suggest that explaining the financing behaviour of Italian firms solely through one of these two theoretical frameworks would not be realistic.