The Impact of Financial Structure on Firms' Financial Constraints: A Cross-Country Analysis

Christopher Baum, Dorothea Schäfer () and Oleksandr Talavera ()
Additional contact information
Dorothea Schäfer: DIW Berlin
Authors registered in the RePEc Author Service: Dorothea Schäfer

No 3, University of East Anglia Applied and Financial Economics Working Paper Series from School of Economics, University of East Anglia, Norwich, UK.

Abstract: We estimate firms' cash flow sensitivity of cash to empirically test how the financial system's structure and activity level influence their financial constraints. For this purpose we merge Almeida et al. (2004), a path-breaking new design for evaluating a firm's financial constraints, with Levine (2002), who paved the way for comparative analysis of financial systems around the world. We conjecture that a country's financial system, both in terms of its structure and its level of development, influences the cash flow sensitivity of cash of constrained firms but leaves unconstrained firms unaffected. We test our hypothesis with a large international sample of 80,000 firm-years from 1989 to 2006. Our findings reveal that both the structure of the financial system and its level of development matter. Bank-based financial systems provide the constrained firms with easier access to external financing.

Keywords: financial constraints; financial system; cash flow sensitivity of cash (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2010-04-21
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ueaeco.github.io/working-papers/papers/afe/UEA-AFE-003.pdf (application/pdf)

Related works:
Working Paper: The Impact of Financial Structure on Firms' Financial Constraints: A Cross-Country Analysis (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uea:aepppr:2010_3

Ordering information: This working paper can be ordered from
Reception, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK

Access Statistics for this paper

More papers in University of East Anglia Applied and Financial Economics Working Paper Series from School of Economics, University of East Anglia, Norwich, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Cara Liggins ().