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Small Bus Econ (2014) 42:99116 DOI 10.1007/s11187-012-9465-5
Financial constraints and rm dynamics
Giulio Bottazzi Angelo Secchi Federico Tamagni
Accepted: 19 November 2012 / Published online: 20 December 2012 Springer Science+Business Media New York 2012
Abstract This study analyzes the effect of nancial constraints (FCs) on rm dynamics. We measure FCs with an ofcial credit rating, which captures availability and cost of external resources. We nd that FCs undermine average rm growth, induce anti-correlation in growth patterns and reduce the dependence of growth volatility on size. FCs are also associated with higher volatility and asymmetries in growth shock distributions, preventing young fast-growing rms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow-growing rms, particularly if old. The sub-diffusive nature of the growth process of constrained rms is compatible with the distinctive properties of their size distribution.
Keywords Financial constraints Firm size
distribution Firm growth Credit ratings
Asymmetric exponential power distribution
JEL Classications L11 C14 D20 G30 L26
1 Introduction
A rms ability to access external nancial resources represents a factor that inuences several dimensions of rm dynamics. There is indeed overwhelming evidence that nancing constraints (FCs) are important in many rms decisions, such as those on investment/divestment in xed capital (Fazzari et al. 1988; Devereux and Schiantarelli 1990; Bond et al. 2003) and working capital (Fazzari and Petersen 1993), wages (Michelacci and Quadrini 2009), cash management policies (Campello et al. 2010), inventory demand (Kashyap et al. 1994) or research and development (R&D) and innovation strategies (Hall 2002; Brown et al. 2009). Empirical studies seeking to identify the effects of nancing problems on the trajectories of rm size evolution have become a well-established tradition within this vast body of literature (see the reviews in Fagiolo and Luzzi 2006; Oliveira and Fortunato 2006; Whited 2006). Our paper contributes to this latter stream of research by adopting a new analytical framework able to cope with an
G. Bottazzi (&) F. Tamagni
Institute of Economics, Scuola Superiore SantAnna, Piazza Martiri della Liberta 33, 56127 Pisa, Italy e-mail: [email protected]
F. Tamagnie-mail: [email protected]
A. SecchiCentre dEconomie de la Sorbonne (CES), Paris School of EconomicsUniversit Paris 1 PanthonSorbonne, 106-112 Boulevard de lHpital, 75647 Paris Cedex 13, Francee-mail: [email protected]
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