Firm Growth and Liquidity Constraints: A Dynamic Analysis
AbstractUsing a large unbalanced panel data set of Portuguese manufacturing firms surviving over the period from 1990 to 2001, the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth. We use a GMM-system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth. The model is estimated for all size classes, including micro firms. Our findings suggest that smaller and younger firms have higher growth-cash flow sensitivities than larger and more mature firms. This is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms. Finally, firms that were small and young and strongly liquidity-constrained at the beginning of the sample period exhibited more persistent growth than those that were large and old and weakly liquidity-constrained. These results have significant policy implications.
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Bibliographic InfoPaper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2005-07.
Length: 36 pages
Date of creation: 2005
Date of revision:
Publication status: Published in Small Business Economics, 27(2): 139-156, 2006.
firm size; firm growth; liquidity constraints; GMM estimator; panel data;
Other versions of this item:
- Blandina Oliveira & Adelino Fortunato, 2006. "Firm Growth and Liquidity Constraints: A Dynamic Analysis," Small Business Economics, Springer, vol. 27(2), pages 139-156, October.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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