A new measure of financial constraints applicable to private and public firms
Ralf Elsas and
Journal of Banking & Finance, 2019, vol. 101, issue C, 270-295
We study managers’ self-assessment of their firm’s financial constraint status to assess the validity of commonly used indicators of financial constraints. As categorizations based on common financial constraints measures lead to high misclassifications, we derive a new measure of financial constraints which performs well in-sample and out-of-sample for private firms. Applying our new measure to a large sample of private European firms, we find consistently lower investment-cash flow sensitivities and greater distortions in response to exogenous financing frictions for constrained firms across countries. Besides private firms, our new measure can also be applied to listed U.S. firms, as it reliably identifies constrained firms as measured by the occurrence of liquidity events and the incidence of an inelastic capital supply.
Keywords: Financial constraints; Private firms; Survey data; Forecast accuracy; Liquidity events (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:101:y:2019:i:c:p:270-295
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().