Firm Growth and Liquidity Constraints: A Dynamic Analysis

Blandina Oliveira () and Adelino Fortunato

Small Business Economics, 2006, vol. 27, issue 2, pages 139-156

Abstract: Using a large unbalanced panel data set of Portuguese manufacturing firms surviving over the period from 1990 to 2001, the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth. We use a GMM-system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth. The model is estimated for all size classes, including micro firms. Our findings reveal that smaller and younger firms have higher growth-cash flow sensitivities than larger and more mature firms. This is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms. Nevertheless, the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment/cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect. Besides, firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old. Finally, these results have significant policy implications. Copyright Springer 2006

Keywords: firm growth; firm size; GMM estimator; liquidity constraints; panel data; C23; G32; L11 (search for similar items in EconPapers)
Date: 2006
View list of references View citations in EconPapers

Downloads: (external link)
http://hdl.handle.net/10.1007/s11187-006-0006-y (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Firm Growth and Liquidity Constraints: A Dynamic Analysis (2005)
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: http://EconPapers.repec.org/RePEc:kap:sbusec:v:27:y:2006:i:2:p:139-156

Access Statistics for this article

Small Business Economics is edited by Zoltan J. Acs and David B. Audretsch

More articles in Small Business Economics from Springer
Series data maintained by Christopher F. Baum ().