Abstract

The recent evolution of Italian capitalism shows the increasing relevance of medium-sized enterprises (MSE) at three levels: the economic and institutional environment, the ownership structure and the financing policy. A comparison of the financial structure of Italian MSEs with some European countries, using BATCH data, shows their financial fragility, where the prevalence of debt over equity justifies the still strong and close relationship between control and management and the ancient bank-firm relationship based on short-term external finance and multiple business lending. These factors slow down firms' expansion and consequently the need for companies to grow so as to face the new global market. Finance is confirmed as a determinant of growth both in size and in organisation. Using Mediobanca data we verify that, as long as firms expand mainly by means of self-financing, growth will be limited and the organisation remains strongly family-based. We conclude that a pivotal role for the Italian firms' growth lies in a "revised" relationship between size, governance and firms' financial structure, especially in the perspective of the new rules introduced by the New Basel Accord. We show that their current asset and financial distress could be solved by promoting an adequate economic and institutional environment that really develops a market of firms' control.