Firm Dynamics and Financial Development

Cristina Arellano, Yan Bai and Jing Zhang

No 15193, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the impact of cross-country variation in financial market development on firms' financing choices and growth rates using comprehensive firm-level datasets. We document that in less financially developed economies, small firms grow faster and have lower debt to asset ratios than large firms. We then develop a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk. We parameterize the model to the firms' financial structure in the data and show that financial restrictions can account for the majority of the difference in growth rates between firms of different sizes across countries.

JEL-codes: E22 F2 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-dev, nep-ent and nep-mac
Note: EFG IFM
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Citations: View citations in EconPapers (10)

Published as Arellano, Cristina & Bai, Yan & Zhang, Jing, 2012. "Firm dynamics and financial development," Journal of Monetary Economics, Elsevier, vol. 59(6), pages 533-549.

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Related works:
Journal Article: Firm dynamics and financial development (2012)
Working Paper: Firm dynamics and financial development (2009)
Working Paper: Firm Dynamics and Financial Development (2009)
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