The Impact of Financial Constaints on Firm Survival and Growth
AbstractWe propose a new approach for identifying and measuring the degree of financial constraint faced by firms and use it to investigate the effect of financial constraints on firm survival and development. Using panel data on French manufacturing firms over the 1996-2004 period, we find that (i) financial constraints significantly increase the probability of exiting the market, (ii) access to external financial resources has a positive effect on the growth of firms in terms of sales, capital stock and employment, (iii) financial constraints are positively related with productivity growth in the short-run. We interpret this last result as the sign that constrained firms need to cut costs in order to generate the resources they cannot raise on financial markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2007-37.
Date of creation: 2007
Date of revision:
Financial constraints; Firm growth; Firm survival;
Other versions of this item:
- Patrick Musso & Stefano Schiavo, 2008. "The impact of financial constraints on firm survival and growth," Journal of Evolutionary Economics, Springer, vol. 18(2), pages 135-149, April.
- Patrick Musso & Stefano Schiavo, 2007. "The Impact of Financial Constraints on Firms Survival and Growth," Sciences Po publications 2007-37, Sciences Po.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-26 (All new papers)
- NEP-BEC-2008-01-26 (Business Economics)
- NEP-CFN-2008-01-26 (Corporate Finance)
- NEP-EFF-2008-01-26 (Efficiency & Productivity)
- NEP-ENT-2008-01-26 (Entrepreneurship)
- NEP-FDG-2008-01-26 (Financial Development & Growth)
- NEP-MAC-2008-01-26 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Simon Gilchrist & Charles P. Himmelberg, 1995.
"Evidence on the Role of Cash Flow for Investment,"
95-01, New York University, Leonard N. Stern School of Business, Department of Economics.
- Gilchrist, S. & Himmelberg, C.P., 1995. "Evidence on the Role of Cash Flow for Investment," Papers 95-29, Columbia - Graduate School of Business.
- Simon Gilchrist & Charles P. Himmelberg, 1993. "Evidence on the role of cash flow for investment," Finance and Economics Discussion Series 93-7, Board of Governors of the Federal Reserve System (U.S.).
- Nickell, S. & Nicolitsas, D., 1995.
"How Does Financial Pressure Affect Firms,"
Economics Series Working Papers
99170, University of Oxford, Department of Economics.
- Becchetti, Leonardo & Trovato, Giovanni, 2002. " The Determinants of Growth for Small and Medium Sized Firms: The Role of the Availability of External Finance," Small Business Economics, Springer, vol. 19(4), pages 291-306, December.
- Levine, Ross, 2005.
"Finance and Growth: Theory and Evidence,"
Handbook of Economic Growth,
in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934
- R. Glenn Hubbard, 1997.
"Capital-Market Imperfections and Investment,"
NBER Working Papers
5996, National Bureau of Economic Research, Inc.
- Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, 09.
- Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
- Lamont, Owen & Polk, Christopher & Saa-Requejo, Jesus, 2001.
"Financial Constraints and Stock Returns,"
Review of Financial Studies,
Society for Financial Studies, vol. 14(2), pages 529-54.
- Owen Lamont & Christopher Polk & Jesus Saa-Requejo, . "Financial Constraints and Stock Returns."," CRSP working papers 451, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Owen Lamont & Christopher Polk & Jesus Saa-Requejo, 1997. "Financial Constraints and Stock Returns," NBER Working Papers 6210, National Bureau of Economic Research, Inc.
- Aghion, P. & Askenazy, P. & Berman, N. & Cette, G. & Eymard, L., 2008.
"Credit Constraints and the Cyclicality of R&D Investment: Evidence from France,"
198, Banque de France.
- Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
- Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2008. "Credit constraints and the cyclicality of R&D investment: Evidence from France," PSE Working Papers halshs-00586744, HAL.
- Aghion, Philippe & Fally, Thibault & Scarpetta, Stefano, 2007.
"Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms,"
IZA Discussion Papers
3237, Institute for the Study of Labor (IZA).
- Philippe Aghion & Thibault Fally & Stefano Scarpetta, 2007. "Credit constraints as a barrier to the entry and post-entry growth of firms," Economic Policy, CEPR & CES & MSH, vol. 22, pages 731-779, October.
- Scarpetta, Stefano & Fally, Thibault & Aghion, Philippe, 2007. "Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms," Scholarly Articles 4554208, Harvard University Department of Economics.
- Bond, Stephen & Meghir, Costas, 1994.
"Dynamic Investment Models and the Firm's Financial Policy,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(2), pages 197-222, April.
- Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
- Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
- Frédérique Savignac, 2006.
"The impact of financial constraints on innovation : evidence from french manufacturing firms,"
Cahiers de la Maison des Sciences Economiques
v06042, Université Panthéon-Sorbonne (Paris 1).
- Frédérique Savignac, 2006. "The impact of financial constraints on innovation : evidence from French manufacturing firms," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00115717, HAL.
- Hyeok Jeong & Robert M. Townsend, 2005.
"Sources of TFP Growth: Occupational Choice and Financial Deepening,"
IEPR Working Papers
05.28, Institute of Economic Policy Research (IEPR), revised May 2005.
- Hyeok Jeong & Robert Townsend, 2007. "Sources of TFP growth: occupational choice and financial deepening," Economic Theory, Springer, vol. 32(1), pages 179-221, July.
- Robert M. Townsend & Hyeok Jeong, 2007. "Sources of TFP Growth: Occupational Choice and Financial Deepening," 2007 Meeting Papers 198, Society for Economic Dynamics.
- Beck, T.H.L. & Demirgüc-Kunt, A. & Laeven, L. & Levine, R., 2008.
"Finance, firm size and growth,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-3132808, Tilburg University.
- Beck, Thorsten & Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2005. "Finance, firm size, and growth," Policy Research Working Paper Series 3485, The World Bank.
- Thorsten Beck & Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2004. "Finance, Firm Size, and Growth," NBER Working Papers 10983, National Bureau of Economic Research, Inc.
- Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
- Binks, Martin R & Ennew, Christine T, 1996. " Growing Firms and the Credit Constraint," Small Business Economics, Springer, vol. 8(1), pages 17-25, February.
- Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989.
"Corporate structure, liquidity, and investment: evidence from Japanese industrial groups,"
Finance and Economics Discussion Series
82, Board of Governors of the Federal Reserve System (U.S.).
- Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
- Whited, Toni M., 2006. "External finance constraints and the intertemporal pattern of intermittent investment," Journal of Financial Economics, Elsevier, vol. 81(3), pages 467-502, September.
- Kadapakkam, Palani-Rajan & Kumar, P. C. & Riddick, Leigh A., 1998. "The impact of cash flows and firm size on investment: The international evidence," Journal of Banking & Finance, Elsevier, vol. 22(3), pages 293-320, March.
- Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, 02.
- Chirinko, Robert S & Schaller, Huntley, 1995.
"Why Does Liquidity Matter in Investment Equations?,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 27(2), pages 527-48, May.
- Robert S. Chirinko & Huntley Schaller, 1993. "Why does liquidity matter in investment equations?," Research Working Paper 93-13, Federal Reserve Bank of Kansas City.
- Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993.
"Sticking it Out: Entrepreneurial Survival and Liquidity Constraints,"
NBER Working Papers
4494, National Bureau of Economic Research, Inc.
- Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
- Campa, Jose M. & Shaver, J. Myles, 2002. "Exporting and capital investment: On the strategic behavior of exporters," IESE Research Papers D/469, IESE Business School.
- Good, D. & Nadiri, M.I. & Sickles, R., 1996.
"Index Number and Factor Demand Approaches to the Estimarion of Productivity,"
96-34, C.V. Starr Center for Applied Economics, New York University.
- David H. Good & M. Ishaq Nadiri & Robin C. Sickles, 1996. "Index Number and Factor Demand Approaches to the Estimation of Productivity," NBER Working Papers 5790, National Bureau of Economic Research, Inc.
- Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
- Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988.
"Financing Constraints and Corporate Investment,"
NBER Working Papers
2387, National Bureau of Economic Research, Inc.
- Nickell, Stephen & Nicolitsas, Daphne & Dryden, Neil, 1997.
"What makes firms perform well?,"
European Economic Review,
Elsevier, vol. 41(3-5), pages 783-796, April.
- repec:pse:psecon:2008-26 is not listed on IDEAS
- Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
- Cleary, Sean, 2006. "International corporate investment and the relationships between financial constraint measures," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1559-1580, May.
- Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, 04.
- Michael Devereux & Fabio Schiantarelli, 1990.
"Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data,"
in: Asymmetric Information, Corporate Finance, and Investment, pages 279-306
National Bureau of Economic Research, Inc.
- Michael Devereux & Fabio Schiantarelli, 1989. "Investment, Finacial Factors and Cash Flow: Evidence From UK Panel Data," NBER Working Papers 3116, National Bureau of Economic Research, Inc.
- Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
- Flora Bellone & Patrick Musso & Lionel Nesta & Michel Qu�r�, 2008. "Market selection along the firm life cycle," Industrial and Corporate Change, Oxford University Press, vol. 17(4), pages 753-777, August.
- Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
- Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francesco Saraceno).
If references are entirely missing, you can add them using this form.