The impact of financial constraints on firm survival and growth

Observatoire Français des Conjonctures Économiques
Journal of Evolutionary Economics (Impact Factor: 1). 02/2008; 18(2):135-149. DOI: 10.1007/s00191-007-0087-z
Source: RePEc

ABSTRACT We propose a new approach for identifying and measuring the degree of financial constraint faced by firms and use it to investigate
the effect of financial constraints on firm survival and development. Using panel data on French manufacturing firms over
the 1996–2004 period, we find that (1) financial constraints significantly increase the probability of exiting the market,
(2) access to external financial resources has a positive effect on the growth of firms in terms of sales, capital stock and
employment, (3) financial constraints are positively related with productivity growth in the short-run. We interpret this
last result as the sign that constrained firms need to cut costs in order to generate the resources they cannot raise on financial

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    ABSTRACT: We examine the differential effects of financial status and exporting activity on the likelihood of survival for firms in the UK and France - two countries with different financial systems. We aim to answer two main questions: What is the direct impact of financial characteristics and different facets of exporting activity on the likelihood of survival? Do the sensitivities of survival incidence to financial variables vary with the exporting status of firms? We find strong evidence that continuous exporters face a higher probability of survival compared to starters, continuous non-exporters and firms exiting the exporting market. Further, important sensitivities of survival prospects to financial indicators are observed for the UK firms which might be explained by the ''market based'' economy. Finally, a within and across countries comparison reveals that the survival of exporting groups varies substantially depending on firms' financial status, the financial system and the prolonged participation in the export market.
    Department of Economics, Loughborough University, Discussion Paper Series. 01/2009;
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    ABSTRACT: The ability of firms to access external financial resources represents a key factor influencing several dimensions of firms’ dynamics. However, while recent qualitative evidence suggests the existence of heterogeneous and asymmetric reactions of firms to financing constraints (FC) problems, the literature on the empirics of size-growth dynamics focuses on the effects of FC on average growth rate and on the long term evolution of the firm size distribution. In this paper we extend the analysis to a wider range of possible FC effects on firm growth dynamics, including its autoregressive and heteroskedastic structure and the degree of asymmetry in growth shocks distribution. We measure FC with an official credit rating index, which directly captures the borrowers’ opinion about firm’s financial soundness deciding, in turn, the availability and cost of its external resources. Our broader investigation reveals that FC significantly affect firm’s performance and operate through several channels. In the short run, they reduce expected firm growth rate, induce anti-correlation in growth shocks and a milder dependence of growth rates volatility on size, and also operate through asymmetric “threshold effects”, either preventing potentially fast growing firms from enjoying attractive growth opportunities, or further deteriorating the growth prospects of already slow growing firms. The subdiffusive nature of the growth process of constrained firms is compatible with the observed differences in their size distribution.
    Small Business Economics 01/2010; · 1.55 Impact Factor
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    ABSTRACT: We use the indirect production function approach in the stochastic frontier framework to estimate separately the output losses due to the presence of a budget constraint and technical inefficiency. We develop a methodology for estimating the severity and testing the significance of the expenditure constraint at individual producer level. Our results, based on the farm data from three Russian regions from 1999 to 2003, show that the majority of the farms studied were expenditure-constrained during the study period. Expenditure constraints caused, on average, a potential output loss of 20 per cent. Output loss due to technical inefficiency, on average, is found to be around 13 per cent. Oxford University Press and Foundation for the European Review of Agricultural Economics 2009; all rights reserved. For permissions, please email, Oxford University Press.
    European Review of Agricultural Economics 01/2009; 36(3):343-367. · 1.85 Impact Factor

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