The Sources of Financing Constraints

Boris Nikolov, Lukas Schmid and Roberto Steri
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Boris Nikolov: University of Lausanne; Swiss Finance Institute
Lukas Schmid: Duke University - The Fuqua School of Business
Roberto Steri: University of Lausanne; Swiss Finance Institute

No 18-74, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: In order to identify the relevant sources of firms' financing constraints, we ask what financial rictions matter for corporate policies. To that end, we build, solve, and estimate a range of dynamic models of corporate investment and financing, embedding a host of financial frictions. We focus on limited enforcement, moral hazard, and tradeoff models. All models share a common technology, but differ in the friction generating financing constraints. Using panel data on Compustat firms for the period 1980-2015 and a more recent dataset on private firms from Orbis, we determine which features of the observed data allow to distinguish among the models, and we assess which model performs best at rationalizing observed corporate investment and financing policies across various samples. Our tests, based on empirical policy function benchmarks, favor trade-off models for larger Compustat firms, limited commitment models for smaller firms, and moral hazard models for private firms. Our estimates point to significant financing constraints due to agency frictions.

Keywords: Financing constraints; financial frictions; moral hazard; limited enforcement; tradeoff; dynamic contracting; agency; structural estimation; empirical policy function estimation (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2018-11
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1874

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