IDEAS home Printed from https://ideas.repec.org/p/bde/wpaper/0836.html
   My bibliography  Save this paper

Financing obstacles and growth: An analysis for euro area non-financial corporations

Author

Listed:
  • Chiara Coluzzi

    () (University of Rome Tor Vergata)

  • Annalisa Ferrando

    () (European Central Bank)

  • Carmen Martínez-Carrascal

    () (Banco de España)

Abstract

This paper investigates whether financial obstacles, and, more generally, financial pressure faced by firms, significantly affect firm growth. For this purpose, we use an unbalanced panel of about 1,000,000 observations for around 155,000 non-financial corporations in five euro area countries. In addition to the balance sheet information in this panel, we also rely on firm level survey data. In this way we are able to work out a direct measure of the firms’ probability of facing financing obstacles. Our results indicate that, though based on few variables, this measure appears to be relevant in explaining firm growth in four out of the five countries considered. Other firm-level variables related to the financial pressure faced by firms, such as cash flow (debt burden) are found to exert a positive (negative) impact on firm growth, while the results for leverage are less clear-cut.

Suggested Citation

  • Chiara Coluzzi & Annalisa Ferrando & Carmen Martínez-Carrascal, 2009. "Financing obstacles and growth: An analysis for euro area non-financial corporations," Working Papers 0836, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0836
    as

    Download full text from publisher

    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/08/Fic/dt0836e.pdf
    File Function: First version, January 2009
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities are Useful: A Comment on Kaplan and Zingales," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 695-705.
    2. Hernando, Ignacio & Martínez-Carrascal, Carmen, 2008. "The impact of financial variables on firms' real decisions: Evidence from Spanish firm-level data," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 543-561, March.
    3. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 173-222.
    4. Gilchrist, Simon & Himmelberg, Charles P., 1995. "Evidence on the role of cash flow for investment," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 541-572, December.
    5. Giorgio Fagiolo & Alessandra Luzzi, 2006. "Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry," Industrial and Corporate Change, Oxford University Press, vol. 15(1), pages 1-39, February.
    6. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 285-315.
    7. Opler, Tim C & Titman, Sheridan, 1994. " Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, vol. 49(3), pages 1015-1040, July.
    8. Philippe Aghion & Thibault Fally & Stefano Scarpetta, 2007. "Credit constraints as a barrier to the entry and post-entry growth of firms," Economic Policy, CEPR;CES;MSH, vol. 22, pages 731-779, October.
    9. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
    10. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    11. Stephen Bond & Anke Hoeffler & Jonathan Temple, 2001. "GMM Estimation of Empirical Growth Models," Economics Papers 2001-W21, Economics Group, Nuffield College, University of Oxford.
    12. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2003. "Does Gibrat's Law hold among young, small firms?," Journal of Evolutionary Economics, Springer, vol. 13(3), pages 213-235, August.
    13. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 707-712.
    14. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    15. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
    16. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    17. Dunne, Paul & Hughes, Alan, 1994. "Age, Size, Growth and Survival: UK Companies in the 1980s," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 115-140, June.
    18. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    19. Gian Luca Clementi & Hugo A. Hopenhayn, 2006. "A Theory of Financing Constraints and Firm Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 121(1), pages 229-265.
    20. Goddard, John A. & McKillop, Donal G. & Wilson, John O. S., 2002. "The growth of US credit unions," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2327-2356.
    21. Nickell, Stephen & Nicolitsas, Daphne, 1999. "How does financial pressure affect firms?," European Economic Review, Elsevier, vol. 43(8), pages 1435-1456, August.
    22. Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
    23. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    24. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    25. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    26. Blandina Oliveira & Adelino Fortunato, 2006. "Testing Gibrat's Law: Empirical Evidence from a Panel of Portuguese Manufacturing Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 65-81.
    27. Lang, Larry & Ofek, Eli & Stulz, Rene M., 1996. "Leverage, investment, and firm growth," Journal of Financial Economics, Elsevier, vol. 40(1), pages 3-29, January.
    28. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2004. "Bank Competition and Access to Finance: International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 627-648, June.
    29. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    30. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
    31. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
    32. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-581, June.
    33. Papaioannou, Elias, 2007. "Finance and growth: a macroeconomic assessment of the evidence from a European angle," Working Paper Series 787, European Central Bank.
    34. Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all? : Policies and pitfalls in expanding access," Other publications TiSEM aec73d3a-d6eb-457f-9182-3, Tilburg University, School of Economics and Management.
    35. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    36. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165 Elsevier.
    37. Thomas F. Cooley & Vincenzo Quadrini, 2001. "Financial Markets and Firm Dynamics," American Economic Review, American Economic Association, vol. 91(5), pages 1286-1310, December.
    38. Tschoegl, Adrian E, 1983. "Size, Growth, and Transnationality among the World's Largest Banks," The Journal of Business, University of Chicago Press, vol. 56(2), pages 187-201, April.
    39. Andrew Benito & Ignacio Hernando, 2008. "Labour Demand, Flexible Contracts and Financial Factors: Firm-Level Evidence from Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(3), pages 283-301, June.
    40. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
    41. Wagenvoort, Rien, 2003. "Are finance constraints hindering the growth of SMEs in Europe?," EIB Papers 7/2003, European Investment Bank, Economics Department.
    42. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, October.
    43. Blandina Oliveira & Adelino Fortunato, 2006. "Firm Growth and Liquidity Constraints: A Dynamic Analysis," Small Business Economics, Springer, vol. 27(2), pages 139-156, October.
    44. John Hutchinson & Ana Xavier, 2006. "Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy," Small Business Economics, Springer, vol. 27(2), pages 169-179, October.
    45. Becchetti, Leonardo & Trovato, Giovanni, 2002. "The Determinants of Growth for Small and Medium Sized Firms: The Role of the Availability of External Finance," Small Business Economics, Springer, vol. 19(4), pages 291-306, December.
    46. Beck, Thorsten & Demirguc-Kunt, Asli & Laeven, Luc & Maksimovic, Vojislav, 2006. "The determinants of financing obstacles," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 932-952, October.
    47. Schiantarelli, Fabio, 1996. "Financial Constraints and Investment: Methodological Issues and International Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 70-89, Summer.
    48. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
    49. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    50. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    51. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 33-60.
    52. Andrew Benito & Ignacio Hernando, 2007. "Firm Behaviour And Financial Pressure: Evidence From Spanish Panel Data," Bulletin of Economic Research, Wiley Blackwell, vol. 59(4), pages 283-311, October.
    53. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    54. Richard Blundell & Stephen Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
    55. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
    56. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
    57. Chesher, Andrew, 1979. "Testing the Law of Proportionate Effect," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 403-411, June.
    58. Harhoff, Dietmar & Stahl, Konrad & Woywode, Michael, 1998. "Legal Form, Growth and Exit of West German Firms--Empirical Results for Manufacturing, Construction, Trade and Service Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 453-488, December.
    59. Goddard, John & Wilson, John & Blandon, Peter, 2002. "Panel tests of Gibrat's Law for Japanese manufacturing," International Journal of Industrial Organization, Elsevier, vol. 20(3), pages 415-433, March.
    60. Inklaar, Robert & Koetter, Michael, 2008. "Financial dependence and industry growth in Europe: Better banks and higher productivity," GGDC Research Memorandum GD-100, Groningen Growth and Development Centre, University of Groningen.
    61. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    62. Kumar, M S, 1985. "Growth, Acquisition Activity and Firm Size: Evidence from the United Kingdom," Journal of Industrial Economics, Wiley Blackwell, vol. 33(3), pages 327-338, March.
    63. Hart, Peter E & Oulton, Nicholas, 1996. "Growth and Size of Firms," Economic Journal, Royal Economic Society, vol. 106(438), pages 1242-1252, September.
    64. Michael Devereux & Fabio Schiantarelli, 1990. "Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 279-306 National Bureau of Economic Research, Inc.
    65. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 169-215.
    66. Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
    67. repec:dgr:rugggd:gd-100 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Annalisa Ferrando & Nicolas Griesshaber & Petra Köhler-Ulbrich & Sébastien Pérez-Duarte & Nadine Schmitt, 2013. "Measuring the opinion of firms on the supply and demand of external financing in the euro area," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the Sixth IFC Conference on "Statistical issues and activities in a changing environment", Basel, 28-29 August 2012., volume 36, pages 283-303 Bank for International Settlements.
    2. Cornille, David & Rycx, François & Tojerow, Ilan, 2017. "The employment consequences of SMEs’ credit constraints in the wake of the Great Recession," Working Paper Series 2117, European Central Bank.
    3. Paloma López-García & José Manuel Montero & Enrique Moral-Benito, 2012. "Business cycles and investment in intangibles: evidence from Spanish firms," Working Papers 1219, Banco de España;Working Papers Homepage.
    4. Ferrando, Annalisa & Mulier, Klaas, 2013. "Do firms use the trade credit channel to manage growth?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3035-3046.
    5. Annalisa Ferrando & Klaas Mulier, 2015. "Firms’ Financing Constraints: Do Perceptions Match the Actual Situation?," The Economic and Social Review, Economic and Social Studies, vol. 46(1), pages 87-117.
    6. Allegrezza, Serge & Ben Aoun-Peltier, Leila & Dubrocard, Anne & Larue, Solène, 2013. "Access to finance of independent SMEs in Luxembourg. The consequences of the crisis," MPRA Paper 49330, University Library of Munich, Germany.
    7. Concha Artola & Veronique Genre, 2011. "Euro Area SMEs under Financial Constraints: Belief or Reality?," CESifo Working Paper Series 3650, CESifo Group Munich.

    More about this item

    Keywords

    Financing Constraints; Firm Growth; Panel Data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:0836. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (María Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de España). General contact details of provider: http://www.bde.es/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.