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The Sources of Financing Constraints

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  • Nikolov, Boris
  • Schmid, Lukas
  • Steri, Roberto

Abstract

Which financial frictions drive firms’ financing constraints? We structurally estimate dynamic firm financing models embedding many financial frictions, on panels of public firms and private firms. We focus on limited enforcement, moral hazard, and trade-off models and assess which models rationalize best observed corporate policies across various samples. Our tests, based on empirical policy function benchmarks, favor trade-off models for larger public firms, limited commitment models for smaller public firms, and moral hazard models for Private firms. Our estimates suggest significant financing constraints due to agency frictions and highlight the importance of identifying their sources for firm valuation.

Suggested Citation

  • Nikolov, Boris & Schmid, Lukas & Steri, Roberto, 2021. "The Sources of Financing Constraints," Journal of Financial Economics, Elsevier, vol. 139(2), pages 478-501.
    • Handle: RePEc:eee:jfinec:v:139:y:2021:i:2:p:478-501
    DOI: 10.1016/j.jfineco.2020.07.018
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial frictions; Moral hazard; Limited enforcement; Trade-off; Dynamic contracting;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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