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Where Are The Fragilities? The Relationship Between Firms' Financial Constraints, Size, And Age

  • Carlos Carreira

    (Faculdade de Economia/GEMF, Universidade de Coimbra, Coimbra)

  • Filipe Silva

    (Faculdade de Economia/GEMF, Universidade de Coimbra, Coimbra)

Recessions and financial crisis increase financial constraints and disproportionally affect constrained firms. This Chapter investigates the differences in firms’ financial constraints between sectors using a cash to cash-flow rationale (Almeida et al., 2004) and a firm specific index of constraints (Hovakimien and Hovakimien, 2009). Interpreting higher sensitivities of cash to cash flow as evidence of higher constraints, we find that the relationships between firm size, firm age and constraints are, in general, non-monotonic and not robust to economic sector disaggregation, which contrasts with previous findings.

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This chapter was published in:
  • João Sousa Andrade & Marta C. N. Simões & Ivan Stosic & Dejan Eric & Hasan Hanic (ed.), 2012. "Managing Structural Changes - Trends and Requirements," Books, Institute of Economic Sciences, edition 1, volume 1, number msc.
  • This item is provided by Institute of Economic Sciences in its series Book Chapters with number msc-10.
    Handle: RePEc:ibg:chaptr:msc-10
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    1. Ang, James & Smedema, Adam, 2011. "Financial flexibility: Do firms prepare for recession?," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 774-787, June.
    2. Acharya, Viral V. & Almeida, Heitor & Campello, Murillo, 2007. "Is cash negative debt? A hedging perspective on corporate financial policies," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 515-554, October.
    3. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    4. Coad, Alex, 2010. "Investigating the exponential age distribution of firms," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4, pages 1-30.
    5. Toni M. Whited, 1990. "Debt, liquidity constraints, and corporate investment: evidence from panel data," Finance and Economics Discussion Series 114, Board of Governors of the Federal Reserve System (U.S.).
    6. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    7. Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004. "The Cash Flow Sensitivity of Cash," Journal of Finance, American Finance Association, vol. 59(4), pages 1777-1804, 08.
    8. Patrick Musso & Stefano Schiavo, 2007. "The Impact of Financial Constraints on Firms Survival and Growth," Sciences Po publications 2007-37, Sciences Po.
    9. Filipe SIlva & Carlos Carreira, 2011. "Financial constraints and exports: An analysis of Portuguese firms during the European monetary integration," GEMF Working Papers 2011-13, GEMF - Faculdade de Economia, Universidade de Coimbra.
    10. Filipe Silva & Carlos Carreira, 2011. "Do financial constraints threat the innovation process? Evidence from Portuguese firms," GEMF Working Papers 2011-10, GEMF - Faculdade de Economia, Universidade de Coimbra, revised Oct 2011.
    11. Filipe Silva & Carlos Carreira, 2009. "No Deep Pockets: Some stylized results on firms' financial constraints," GEMF Working Papers 2009-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
    12. Rozalia Pal & Annalisa Ferrando, 2010. "Financing constraints and firms' cash policy in the euro area," The European Journal of Finance, Taylor & Francis Journals, vol. 16(2), pages 153-171.
    13. Owen Lamont & Christopher Polk & Jesus Saa-Requejo, . "Financial Constraints and Stock Returns."," CRSP working papers 451, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    14. Flora Bellone & Patrick Musso & Lionel Nesta & Michel Quere, 2010. "Market Selection Along the Firm Life Cycle," Chapters, in: Innovation, Economic Growth and the Firm, chapter 5 Edward Elgar.
    15. Almeida, Heitor & Campello, Murillo & Weisbach, Michael S., 2011. "Corporate financial and investment policies when future financing is not frictionless," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 675-693, June.
    16. Filipe Silva & Carlos Carreira, 2010. "Financial constraints: Are there differences between manufacturing and services?," GEMF Working Papers 2010-16, GEMF - Faculdade de Economia, Universidade de Coimbra.
    17. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    18. Blalock, Garrick & Gertler, Paul J. & Levine, David I., 2008. "Financial constraints on investment in an emerging market crisis," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 568-591, April.
    19. Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2010. "Liquidity Management and Corporate Investment During a Financial Crisis," NBER Working Papers 16309, National Bureau of Economic Research, Inc.
    20. Ozgur Arslan & Chrisostomos Florackis & Aydin Ozkan, 2006. "The Role of Cash Holdings in Reducing Investment-Cash Flow Sensitivity: Evidence from a Financial Crisis Period in an Emerging Market," Discussion Papers 06/08, Department of Economics, University of York.
    21. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, 04.
    22. Kannan, Prakash, 2012. "Credit conditions and recoveries from financial crises," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 930-947.
    23. Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
    24. Yi-Chen Lin, 2007. "The cash flow sensitivity of cash: evidence from Taiwan," Applied Financial Economics, Taylor & Francis Journals, vol. 17(12), pages 1013-1024.
    25. Michael T. Hannan, 2005. "Ecologies of Organizations: Diversity and Identity," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 51-70, Winter.
    26. repec:sen:rebelj:v:liv:y:2009:i:4:p:461-489 is not listed on IDEAS
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