Measuring financial exclusion of firms

Gerhard Kling

Finance Research Letters, 2021, vol. 39, issue C

Abstract: Financial ratios such as leverage or indices based on firm characteristics (Kaplan–Zingales, Whited–Wu, Hadlock–Pierce) have been used to measure whether a firm has too much debt. Let’s assume a firm does not have any debt. Does this ‘choice’ reflect financial strength or exclusion? To measure the latter, this paper develops a theory to estimate the value of financial constraints. Based on a strictly concave production function, firms that face financial constraints take longer to reach their steady-state. This added time diminishes firm value, which translates into a shadow price of relaxing financial constraints.

Keywords: Impulse control; Financial constraints; Financial exclusion (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612318305713

DOI: 10.1016/j.frl.2020.101568

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