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.
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 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.
Contact details of provider:
Postal: Av. Dias da Silva, 165, 3004-512 COIMBRA
Phone: + 351 239 790 500
Fax: +351 239 403511
Web page: http://gemf.fe.uc.pt/index_en.htm
More information through EDIRC
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; Longitudinal Data; Spatial Time Series
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.:
- Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, 1999.
"What Determines Firm Size?,"
NBER Working Papers
7208, National Bureau of Economic Research, Inc.
- Kumar, Krishna B & Rajan, Raghuram G & Zingales, Luigi, 1999. "What Determines Firm Size?," CEPR Discussion Papers 2211, C.E.P.R. Discussion Papers.
- Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, . "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Klapper, Leora & Sarria-Allende, Virginia & Sulla, Victor, 2002. "Small and medium size enterprise financing in Eastern Europe," Policy Research Working Paper Series 2933, The World Bank.
- 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, vol. 15(1), pages 1-39, February.
- Giorgio Fagiolo & Alessandra Luzzi, 2004. "Do Liquidity Constraints Matter in Explaining Firm Size and Growth? Some Evidence from the Italian Manufacturing Industry," LEM Papers Series 2004/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Spiros Bougheas & Holger Görg & Eric Strobl, 2003. "Is R & D Financially Constrained? Theory and Evidence from Irish Manufacturing," Review of Industrial Organization, Springer, vol. 22(2), pages 159-174, March.
- 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.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- Elston, Julie Ann, 2002. "An Examination of the Relationship Between Firm Size, Growth and Liquidity in the Neuer Markt," Discussion Paper Series 1: Economic Studies 2002,15, Deutsche Bundesbank, Research Centre.
- Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989.
"The Growth and Failure of U.S. Manufacturing Plants,"
The Quarterly Journal of Economics,
MIT Press, vol. 104(4), pages 671-98, November.
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
- John Hutchinson & Ana Xavier, 2006.
"Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy,"
Small Business Economics,
Springer, vol. 27(2), pages 169-179, October.
- John Hutchinson & Ana Xavier, 2004. "Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy," LICOS Discussion Papers 15004, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- José Fariñas & Lourdes Moreno, 2000. "Firms' Growth, Size and Age: A Nonparametric Approach," Review of Industrial Organization, Springer, vol. 17(3), pages 249-265, November.
- Jozef Konings & Marian Rizov & Hylke Vandenbussche, 2002.
"Investment and Credit Constraints in Transition Economies: Micro Evidence from Poland, the Czech Republic, Bulgaria and Romania,"
LICOS Discussion Papers
11202, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- Konings, Joep & Rizov, M & Vandenbussche, Hylke, 2002. "Investment and credit constraints in transition economies : micro evidence from Poland, the Chrch Republic, Bulgaria and Romania," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/224179, Katholieke Universiteit Leuven.
- Goddard, John & Wilson, John & Blandon, Peter, 2002. "Panel tests of Gibrat's Law for Japanese manufacturing," International Journal of Industrial Organization, Elsevier, vol. 20(3), pages 415-433, March.
- 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.
- Mihir Desai & Paul Gompers & Josh Lerner, 2003. "Institutions, Capital Constraints and Entrepreneurial Firm Dynamics: Evidence from Europe," NBER Working Papers 10165, National Bureau of Economic Research, Inc.
- Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
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 statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sara Santos).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.