Can Financing Constraints Explain the Evolution of the Firm Size Distribution?

Can Financing Constraints Explain the Evolution of the Firm Size Distribution? This paper exploits a comprehensive data set on business credit decisions to examine the importance of financing constraints for the evolution of the firm size distribution. The survey of small business finances provides information on whether a firm was in need of external financing. Firms without access to external financing—either because they were denied credit or because they did not apply for credit because they expected to be denied credit—are significantly smaller. To tighten the link between financing constraints and firm dynamics, I estimate the effect of financing constraints on subsequent employment growth and find that firms without access to external financing exhibit up to 3.5 % points lower annual employment growth than do their unconstrained counterparts. These findings suggest that financing constraints are a potentially important factor for understanding firm dynamics. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Can Financing Constraints Explain the Evolution of the Firm Size Distribution?

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Publisher
Springer US
Copyright
Copyright © 2016 by Springer Science+Business Media New York (outside the USA)
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-015-9498-4
Publisher site
See Article on Publisher Site

Abstract

This paper exploits a comprehensive data set on business credit decisions to examine the importance of financing constraints for the evolution of the firm size distribution. The survey of small business finances provides information on whether a firm was in need of external financing. Firms without access to external financing—either because they were denied credit or because they did not apply for credit because they expected to be denied credit—are significantly smaller. To tighten the link between financing constraints and firm dynamics, I estimate the effect of financing constraints on subsequent employment growth and find that firms without access to external financing exhibit up to 3.5 % points lower annual employment growth than do their unconstrained counterparts. These findings suggest that financing constraints are a potentially important factor for understanding firm dynamics.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Jan 2, 2016

References

  • Optimal lending contracts and firm dynamics
    Albuquerque, R; Hopenhayn, HA
  • On the evolution of firm size distribution
    Angelini, P; Generale, A

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