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.
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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.
- 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)
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