Small firms, growth and financial constraints

Agustí Segarra () and Mercedes Teruel Carrizosa ()
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Agustí Segarra: GRIT, Universitat Rovira Virgili

No XREAP2009-11, Working Papers from Xarxa de Referència en Economia Aplicada (XREAP)

Abstract: This paper analyses the impact of different sources of finance on the growth of firms. Using panel data from Spanish manufacturing firms for the period 2000-2006, we investigate the effects of internal and external finances on firm growth. In particular, we examine three dimensions of these financial sources: a) the performance of the firms’ capital structure in accordance with firm size; b) the effects of internal and external financial sources on growth performance; c) the combined effect of equity, external debt and cash flow on firm growth. We find that low-growth firms are sensitive to cash flow and short-term bank debt, while high-growth firms are more sensitive to long-term debt. Furthermore, equity capital seems to reduce barriers to external finance. Our main conclusion is that during the start-up phase, firms are unable to increase their financial leverage and so their capital structure fails to promote correct investment strategies. However, as their equity capital increases, alternative financial mechanisms, in particular long-term debt, become available, which have a positive impact on firm growth.

Keywords: firm growth; small firms. (search for similar items in EconPapers)
JEL-codes: L25 R12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-10, Revised 2009-10
New Economics Papers: this item is included in nep-cse, nep-ent, nep-fdg and nep-sbm
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Citations: View citations in EconPapers (5)

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http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-11.pdf First version, september 2009 (application/pdf)
http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-11-revised.pdf Revised version, november 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:xrp:wpaper:xreap2009-11

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