The Correlation between Romanian Financing Pattern of Firms and Fixed Capital Formation in the Real Sector

Abstract

This paper focuses mainly on the analysis of the firms' financing structure, the rationale being that it is a relevant element for the growth potential of the real sector and, implicitly, the national economy. Data at European level illustrate that insufficient own sources entail a modest level and quality of investment, thereby confining the contribution of capital to economic growth. Information at microeconomic level pinpoints that high indebtedness, for a significant part of domestic companies, when the economic crisis broke out, caused the investment rate to decline more abruptly. Specifically, it appears that overlyindebted companies carry out a marked pro-cyclical economic activity, which is, however, vulnerable to significant corrections required by adverse economic events. In general, heavily-indebted companies continue to report weaker financial indicators and lower productivity than the firms for which own sources of financing are prevalent in the balance sheet. These developments, combined with the large share of the hidden economy, weigh on competitiveness and the sustainable growth prospects of Romania's economy.