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Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry

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  • Giorgio Fagiolo
  • Alessandra Luzzi

Abstract

The article investigates whether liquidity constraints affect firm size and growth dynamics of Italian manufacturing firms. Panel-data regressions and distribution analyses show that (i) liquidity constraints engender a negative effect on growth once one controls for size; (ii) smaller firms grow more after controlling for liquidity constraints; and (iii) the stronger liquidity constraints, the more size negatively affects firm growth. Furthermore, we find that financial constraints help in better explaining the relationship between firm growth and age, conditional on size. Finally, our data indicate that size distributions depart from log-normality, and growth rates are well approximated by Laplace densities. Copyright 2006, Oxford University Press.

Suggested Citation

  • Giorgio Fagiolo & Alessandra Luzzi, 2006. "Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 15(1), pages 1-39, February.
    • Handle: RePEc:oup:indcch:v:15:y:2006:i:1:p:1-39
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