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Product Market Competition, Capital Constraints and Firm Growth

Author

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  • Mikael C. Bergbrant

    () (St. John’s University)

  • Delroy M. Hunter

    () (University of South Florida)

  • Patrick J. Kelly

    () (New Economic School)

Abstract

We examine the impact of product market competition on quantity-of-capital constraints in 58 countries. Prior work shows that competition increases the costs of debt and equity, which reduce the economic profit from investment. Capital constraints, however, may prevent firms from exploiting all positive NPV projects. Using econometric techniques and unique survey data, we avoid potential endogeneity problems common to the study of both capital constraints and product market competition. We show that product market competition increases capital constraints. Auxiliary analyses suggest that asymmetric information is one mechanism driving this linkage. We also show that quantity-of-capital constraints negatively impact firm growth.

Suggested Citation

  • Mikael C. Bergbrant & Delroy M. Hunter & Patrick J. Kelly, 2015. "Product Market Competition, Capital Constraints and Firm Growth," Working Papers w0215, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0215
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    Keywords

    capital constraints; financial constraints; credit constraints; access to finance; product market competition; bank competition; credit rationing;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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