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Dynamic Financial Constraints: Which Frictions Matter for Corporate Policies?

Author

Listed:
  • Roberto Steri

    (University of Lausanne - Swiss Finance Institute)

  • Lukas Schmid

    (Duke University)

  • Boris Nikolov

    (University of Lausanne and Swiss Finance Institute)

Abstract

We build, solve, and estimate a range of dynamic models of corporate investment and financing. We focus on limited enforcement, moral hazard, and tradeoff models. All models share a common technology structure, but differ in the friction generating financial constraints. Using panel data on Compustat firms for the period 1980-2015 and a more recent dataset on private firms from Orbis, we determine which features of the observed data allow to distinguish among the models, and we assess which model performs best at rationalizing observed corporate investment and financing policies across various samples. Our tests, based on empirical policy function benchmarks, favor limited commitment models for larger compustat firms, and moral hazard models for private firms.

Suggested Citation

  • Roberto Steri & Lukas Schmid & Boris Nikolov, 2017. "Dynamic Financial Constraints: Which Frictions Matter for Corporate Policies?," 2017 Meeting Papers 630, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:630
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    References listed on IDEAS

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    Cited by:

    1. Stephane Verani, 2018. "Aggregate Consequences of Dynamic Credit Relationships," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 44-67, July.
    2. Stephane Verani, 2018. "Aggregate Consequences of Dynamic Credit Relationships," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 44-67, July.

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