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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

Suggested Citation

  • Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2014. "Financial constraints and firm dynamics," Small Business Economics, Springer, vol. 42(1), pages 99-116, January.
    • Handle: RePEc:kap:sbusec:v:42:y:2014:i:1:p:99-116
    DOI: 10.1007/s11187-012-9465-5
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    More about this item

    Keywords

    Financial constraints; Firm size distribution; Firm growth; Credit ratings; Asymmetric exponential power distribution; L11; C14; D20; G30; L26;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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