How Do Short-term Financial Constraints Affect SMEs’ Long-Term Investment: Evidence from the Working Capital Channel
Working papers from Banque de France
This paper investigates the real effects of short-term financial constraints in the light of the working capital channel: cash credit constraints may force SMEs to forgo investment opportunities in order to finance their working capital needs. Building on unique indicators of cash and investment credit constraints derived from survey data, I find that: (1) short-term credit constraints are as important as long-term ones in SMEs' investment decisions; (2) the detrimental effect of cash credit constraints on corporate investment is even stronger for firms with higher working capital needs; (3) the negative relationship between working capital and fixed investment is associated with short-term financial frictions; and (4) only liquid SMEs are able to offset short-term financial frictions by adjusting their accounts receivable and inventories.
Keywords: : Investment; Bank credit; Financial constraints; Working capital; Survey data. (search for similar items in EconPapers)
JEL-codes: D82 E32 E51 G01 G21 (search for similar items in EconPapers)
Pages: 53 pages
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ent, nep-eur, nep-fdg, nep-mac and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:731
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