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Firm entry under financial frictions

Author

Listed:
  • Miguel Casares

    (Departamento de Economia - UPNA - Universidad Pública de Navarra [Espagne] = Public University of Navarra)

  • Jean-Christophe Poutineau

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

How does a general-equilibrium model behave when incorporating competitive firm entry that requires external finance? After conducting a steady-state analysis, we reach three main results. First, the financial constraint has contractionary effects on both equity investment and the labor supply as they are inversely related to the marginal finance cost. Second, the dynamics of firm creation and destruction amplify the impact of changes in either productivity or banking efficiency due to procyclical firm entry. Third, a higher elasticity of substitution (that implies a lower mark-up) cuts the number of firms and makes aggregate output fall.

Suggested Citation

  • Miguel Casares & Jean-Christophe Poutineau, 2013. "Firm entry under financial frictions," Post-Print halshs-00816994, HAL.
    • Handle: RePEc:hal:journl:halshs-00816994
    DOI: 10.1111/rode.12033
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    Cited by:

    1. Poutineau, Jean-Christophe & Vermandel, Gauthier, 2015. "Financial frictions and the extensive margin of activity," Research in Economics, Elsevier, vol. 69(4), pages 525-554.

    More about this item

    Keywords

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    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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