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Measuring financial exclusion of firms

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  • Kling, Gerhard

Abstract

Financial ratios such as leverage or indices based on firm characteristics (Kaplan–Zingales, Whited–Wu, Hadlock–Pierce) have been used to measure whether a firm has too much debt. Let’s assume a firm does not have any debt. Does this ‘choice’ reflect financial strength or exclusion? To measure the latter, this paper develops a theory to estimate the value of financial constraints. Based on a strictly concave production function, firms that face financial constraints take longer to reach their steady-state. This added time diminishes firm value, which translates into a shadow price of relaxing financial constraints.

Suggested Citation

  • Kling, Gerhard, 2021. "Measuring financial exclusion of firms," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612318305713
    DOI: 10.1016/j.frl.2020.101568
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    References listed on IDEAS

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    More about this item

    Keywords

    Impulse control; Financial constraints; Financial exclusion;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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