1 [Preliminary work. Please do not cite] CONFERENCE EPI 2012 UNIVERSITY OF PARMA – ECONOMICS DEPARTMENT JUNE 18-19, 2012 – PARMA (ITALY) “THE IMPACT OF FINANCIAL CONSTRAINTS ON FIRMS’ SURVIVAL: A COMPARISON ACROSS WESTERN EUROPE CONVERGENCE REGIONS” Lidia Mannarino l.mannarino@unical.it tel. 0984-492405 Marianna Succurro m.succurro@unical.it tel. 0984-492445 Department of Economics and Statistics University of Calabria Italy Abstract The aim of the paper is to investigate the impact of financial strength on firms’ survival in Western Europe convergence regions. While large amount of evidence exists on the relation between financial development, firms’ survival and growth both cross-country and cross-industry, much less is known at the microeconomic level of the firm. In this context, the contribution of our research - which relies on accounting data collected from the Bureau van Dijk’s Amadeus database - is twofold. First, we make a microeconomic comparison across Western Europe convergence regions, where the percentage of small and medium enterprises is relatively higher than in more developed regions. Second, following the most recent literature in this field, our research takes into account several financial constraints instead of a commonly used one-dimensional definition of financial status. The empirical evidence shows that the financial strength is a key factor explaining firm survival in Western Europe convergence regions. Some differences arise from a deeper analysis of the financial ratios. While both the debt and the cash flow ratios, as well as profitability, are strongly significant in explaining firms’ survival in Western Europe convergence regions, structure and operational ratios are not important factors explaining firms’ survival. Additional differences arise when we consider the countries separately: while debt and cash flow ratios are significant for bank based economies, they are not significant for United Kingdom, which is characterized by a more developed financial market. This analysis would have interesting applications, given the potential impact of financial constraints on market selection mechanisms and, therefore, on market structure. Keywords: Financial Constraints, Firm Survival. JEL classification: D92; E22; G33; L1.