The Impact of Financing Constraints and Firm Performance

This paper mainly concentrates on the correlation between financing constraints and firm performance. Therefore, this paper will provide more appropriate recommendations for different firms facing different levels of financing constraints, which can improve firm performance. As the theories of capital structure and corporate investment and financing decisions continue to evolve, the influence of financial constraints on corporate business development has emerged as a significant research focus within the realm of corporate finance. In the context of an imperfect capital market, factors such as information asymmetry, financial distress costs, and principal-agent issues contribute to disparities in financing costs between internal and external sources, ultimately resulting in widespread financial constraints faced by firms. Aligning with the pecking order theory of financing, enterprises prioritize internal financing when contemplating investment and financing strategies, followed by bond financing, and ultimately equity financing. Consequently, in scenarios where internal and external financing environments exhibit considerable disparities, the internal financing capacity of enterprises confronted with financing constraints becomes pivotal to their performance. Our objective is to explore whether and how the influence of financing constraints on globally listed firms has changed over a 20-year period from 2002 to 2022. This paper mainly confirms which financing constraints can have a positive and significant effect on firm performance to some extent. Therefore, enterprises should appropriately strengthen their degree of financing constraints in the listing process and operation in order to promote the further improvement of corporate performance.