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The Impact of Financial Constaints on Firm Survival and Growth

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Author Info
Patrick Musso () (University of Nice-Sophia Antipolis)
Stefano Schiavo () (Observatoire Français des Conjonctures Économiques)

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Abstract

We 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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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2007-37.

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Date of creation: 2007
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Handle: RePEc:fce:doctra:0737

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Related research
Keywords: Financial constraints; Firm growth; Firm survival;

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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References listed on IDEAS
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Full references

Cited by:
(explanations, 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.)

  1. Silvia Giannangeli & Giorgio Fagiolo & Massimo Molinari, 2008. "Financial Structure and Corporate Growth: Evidence from Italian Panel Data," LEM Papers Series 2008/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  2. Filipe Silva & Carlos Carreira, 2009. "No Deep Pockets: Some stylized results on firms' financial constraints," GEMF Working Papers 2009-06, GEMF - Faculdade de Economia, Universidade de Coimbra. [Downloadable!]
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