The Sources of Financing Constraints

Boris Nikolov, Lukas Schmid and Roberto Steri

Journal of Financial Economics, 2021, vol. 139, issue 2, 478-501

Abstract: Which financial frictions drive firms’ financing constraints? We structurally estimate dynamic firm financing models embedding many financial frictions, on panels of public firms and private firms. We focus on limited enforcement, moral hazard, and trade-off models and assess which models rationalize best observed corporate policies across various samples. Our tests, based on empirical policy function benchmarks, favor trade-off models for larger public firms, limited commitment models for smaller public firms, and moral hazard models for Private firms. Our estimates suggest significant financing constraints due to agency frictions and highlight the importance of identifying their sources for firm valuation.

Keywords: Financial frictions; Moral hazard; Limited enforcement; Trade-off; Dynamic contracting (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:2:p:478-501

DOI: 10.1016/j.jfineco.2020.07.018

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