Investment-cash flow sensitivities, credit rationing and financing constraints
AbstractThe controversy over whether investment-cash flow sensitivity is a good indicator of financing constraints is still unresolved. We tackle it from several different angles and cross-validate our analysis with both balance sheet and qualitative data on self-declared credit rationing and financing constraints. Our qualitative information shows that (self-declared) credit rationing is (weakly) related to both traditional a priori factors – such as firm size, age and location – and lenders’ rational decisions based on their credit risk models. We use our qualitative information on firms that were denied credit to provide evidence relevant to the investment-cash flow sensitivity debate. Our results show that self-declared credit rationing significantly discriminates between firms that do and do not have such sensitivity, whereas a priori criteria do not. The same result does not apply when we consider the wider group of financially constrained firms (which do not seem to have a higher investment-cash flow sensitivity), which supports the more recent empirical evidence in this direction.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 15/2008.
Length: 64 pages
Date of creation: 24 Jun 2008
Date of revision:
financing constraints; credit rationing; investment/cash flow sensitivity;
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-14 (All new papers)
- NEP-BAN-2008-07-14 (Banking)
- NEP-BEC-2008-07-14 (Business Economics)
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- Annie bellier & Wafa Sayeh & Stéphanie Serve, 2012. "What lies behind credit rationing? A survey of the literature," THEMA Working Papers 2012-39, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Maria Luisa Mancusi & Andrea Vezzulli, 2013. "R&D and Credit Rationing in SMEs," Working Papers Department of Economics 2013/12, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Cinquegrana, Giuseppe & Donati, Cristiana & Sarno, Domenico, 2012. "Financial constraints and relationship lending in the growth of italian SMEs," MPRA Paper 39825, University Library of Munich, Germany.
- Leonardo Becchetti & Melody Garcia & Giovanni Trovato, 2009. "Credit rationing and credit view: empirical evidence from loan data," CEIS Research Paper 144, Tor Vergata University, CEIS, revised 30 Sep 2009.
- Brancati, Emanuele, 2013. "Innovation activity and nancing constraints: evidence from Italy during the crises," MPRA Paper 47750, University Library of Munich, Germany.
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