Firm Growth and Liquidity Constraints: A Dynamic Analysis

Blandina Oliveira () and Adelino Fortunato

No 2005-07, GEMF Working Papers from GEMF - Faculdade de Economia, Universidade de Coimbra

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 suggest 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. Finally, firms that were small and young and strongly liquidity-constrained at the beginning of the sample period exhibited more persistent growth than those that were large and old and weakly liquidity-constrained. These results have significant policy implications.

Keywords: firm size; firm growth; liquidity constraints; GMM estimator; panel data (search for similar items in EconPapers)
JEL-codes: L11 G32 C23 (search for similar items in EconPapers)
Date: 2005
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Published in Small Business Economics, 27(2): 139-156, 2006.

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Journal Article: Firm Growth and Liquidity Constraints: A Dynamic Analysis (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:gmf:wpaper:2005-07

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