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Financial constraints and firm Dynamics

Author

Listed:
  • Giulio Bottazzi

    (LEM - Laboratory of Economics and Management - SSSUP - Scuola Universitaria Superiore Sant'Anna = Sant'Anna School of Advanced Studies [Pisa])

  • Angelo Secchi

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Federico Tamagni

    (SSSUP - Scuola Universitaria Superiore Sant'Anna = Sant'Anna School of Advanced Studies [Pisa])

Abstract

This study analyzes the effect of financial constraints (FCs) on firm dynamics. We measure FCs with an official credit rating, which captures availability and cost of external resources. We find that FCs undermine average firm growth, induce anti-correlation in growth patterns, and reduce the dependence of growth volatility on size. FCs are also associated with higher volatility and asymmetries in growth shock distributions, preventing young fast-growing firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow-growing firms, particularly if old. The sub-diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution.

Suggested Citation

  • Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2014. "Financial constraints and firm Dynamics," Post-Print hal-00976545, HAL.
    • Handle: RePEc:hal:journl:hal-00976545
    DOI: 10.1007/s11187-012-9465-5
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    Keywords

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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