Financial Conservatism of Private Firms

25 Pages Posted: 15 Jan 2014 Last revised: 25 Aug 2014

See all articles by Marco Bigelli

Marco Bigelli

University of Bologna - Department of Management

Juan Francisco Martín-Ugedo

University of Murcia

Javier Sánchez Vidal

Universidad Politecnica de Cartagena - Department of Economics, Accounting and Finance

Date Written: November 30, 2013

Abstract

The aim of this paper is to analyze the factors that motivate private firms to follow a conservative financial policy. Using a new definition of financial conservatism, we investigate a sample of 21,959 Italian private firms for the 1998-2006 period and look for the determinants of financial conservatism according to the main theories of capital structure and financing policy. Our findings show that financially conservative firms are smaller, with more intangible and less tangible assets, lower effective tax rates and follow a pecking order style financial policy. As has been found for their public counterparts, financially conservative private firms seem to pile up cash and their leverage potential before undertaking future investments.

Keywords: Private Firms, Financial conservatism, Net Financial Position, Leverage, Capital Structure

JEL Classification: G32

Suggested Citation

Bigelli, Marco and Martín-Ugedo, Juan Francisco and Sánchez Vidal, Javier, Financial Conservatism of Private Firms (November 30, 2013). Journal of Business Research, Volume 67, Issue 11, November 2014, Pages 2419–2427, Available at SSRN: https://ssrn.com/abstract=2376784 or http://dx.doi.org/10.2139/ssrn.2376784

Marco Bigelli (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, 40126
Italy
+39 051 2098060 (Phone)
+39 051 6390612 (Fax)

Juan Francisco Martín-Ugedo

University of Murcia ( email )

Spain

Javier Sánchez Vidal

Universidad Politecnica de Cartagena - Department of Economics, Accounting and Finance ( email )

Calle Real, 3
Cartagena, 30201
Spain

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