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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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File URL: http://hdl.handle.net/10.1007/s11187-012-9465-5
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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. Giulio Bottazzi & Marco Grazzi & Angelo Secchi & Federico Tamagni, 2007. "Assessing the Impact of Credit Ratings and Economic Performance on Firm Default," LEM Papers Series 2007/15, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2006. "Productivity, Profitability and Financial Fragility: Evidence from Italian Business Firms," LEM Papers Series 2006/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  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. repec:cmj:journl:y:2013:i:27:stetm is not listed on IDEAS
  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. 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.

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