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Financial constraints and firm dynamics

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  • Giulio Bottazzi

    ()

  • Angelo Secchi

    ()

  • Federico Tamagni

    ()

Abstract

This study analyzes the effect of financial constraints (FCs) on firm dynamics. We measure FCs with an official credit rating, which captures availability and cost of external resources. We find that FCs undermine average firm 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 firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow-growing firms, particularly if old. The sub-diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution. Copyright Springer Science+Business Media New York 2014

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Bibliographic Info

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 42 (2014)
Issue (Month): 1 (January)
Pages: 99-116

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Handle: RePEc:kap:sbusec:v:42:y:2014:i:1:p:99-116

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Web page: http://www.springerlink.com/link.asp?id=100338

Related research

Keywords: Financial constraints; Firm size distribution; Firm growth; Credit ratings; Asymmetric exponential power distribution; L11; C14; D20; G30; L26;

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References

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Citations

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Cited by:
  1. Mihaela ȘTEȚ, 2013. "Financial Implications Of Technological Progress," SEA - Practical Application of Science, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 1, pages 192-199, June.
  2. Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2008. "Productivity, profitability and financial performance," Industrial and Corporate Change, Oxford University Press, vol. 17(4), pages 711-751, August.
  3. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," LEM Papers Series 2013/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  4. Rubina Shaheen & Attiya Yasmin Javid, 2014. "Effect of Credit Rating on Firm Performance and Stock Return; Evidence form KSE Listed Firms," PIDE-Working Papers 2014:104, Pakistan Institute of Development Economics.
  5. Sangalli, Ilaria, 2013. "Inventory investment and financial constraints in the Italian manufacturing industry: A panel data GMM approach," Research in Economics, Elsevier, vol. 67(2), pages 157-178.
  6. Giulio Bottazzi & Marco Grazzi & Angelo Secchi & Federico Tamagni, 2011. "Financial and economic determinants of firm default," Journal of Evolutionary Economics, Springer, vol. 21(3), pages 373-406, August.
  7. Matthias Duschl & Thomas Brenner, 2013. "Growth dynamics in regional systems of technological activities – A SVAR approach," Working Papers on Innovation and Space 2013-12, Philipps University Marburg, Department of Geography.
  8. Marco Capasso & Elena Cefis & Alessandro Sapio, 2013. "Reconciling quantile autoregressions of firm size and variance–size scaling," Small Business Economics, Springer, vol. 41(3), pages 609-632, October.
  9. repec:cmj:journl:y:2013:i:27:stetm is not listed on IDEAS

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