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Financial Constraints and Capacity Adjustment: Evidence from a Large Panel of Survey Data

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  • ULF VON KALCKREUTH

Abstract

The focus of this study is on (i) the interaction between financial constraints and capacity restrictions, and (ii) the difference between large and small firms. Using CBI data to provide information on the financial constraints of UK manufacturers, we develop a new identification scheme based on the link between financial constraints and the prevalence and duration of capacity gaps. Two important results emerge: first, financially constrained firms take longer to close capacity gaps; second, small firms close capacity gaps faster than large firms do, but financial constraints seem to be of greater relevance to their adjustment dynamics.

Suggested Citation

  • Ulf Von Kalckreuth, 2006. "Financial Constraints and Capacity Adjustment: Evidence from a Large Panel of Survey Data," Economica, London School of Economics and Political Science, vol. 73(292), pages 691-724, November.
  • Handle: RePEc:bla:econom:v:73:y:2006:i:292:p:691-724
    DOI: 10.1111/j.1468-0335.2006.00514.x
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    File URL: https://doi.org/10.1111/j.1468-0335.2006.00514.x
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    1. Andrew Benito & Garry Young, 2007. "Financial Pressure and Balance Sheet Adjustment by Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(5), pages 581-602, October.
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    Cited by:

    1. Davis, E. Philip & Zhu, Haibin, 2009. "Commercial property prices and bank performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1341-1359, November.
    2. von Kalckreuth, Ulf, 2008. "Financing constraints, firm level adjustment of capital and aggregate implications," Discussion Paper Series 1: Economic Studies 2008,11, Deutsche Bundesbank.
    3. Ulf Kalckreuth, 2011. "Panel estimation of state-dependent adjustment when the target is unobserved," Empirical Economics, Springer, vol. 40(1), pages 205-235, February.
    4. Thiess Buettner & Clemens Fuest, 2010. "The role of the corporate income tax as an automatic stabilizer," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(6), pages 686-698, December.
    5. Spaliara, Marina-Eliza, 2009. "Do financial factors affect the capital-labour ratio? Evidence from UK firm-level data," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1932-1947, October.
    6. Cour-Thimann, Philippine & Salleo, Carmelo & Perrard, Romain & Hendrikx, Maarten & Waschiczek, Walter & Antão, Paula & Rantala, Anssi & Nahmias, Laurent & Sauvé, Annie & Reininger, Thomas & Walko, Zol, 2007. "Corporate finance in the euro area - including background material," Occasional Paper Series 63, European Central Bank.

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