Product Market Competition, Capital Constraints and Firm Growth

Mikael Bergbrant (), Delroy Hunter () and Patrick Kelly
Additional contact information
Mikael Bergbrant: St. John’s University
Delroy Hunter: University of South Florida

No w0215, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: We examine the impact of product market competition on quantity-of-capital constraints in 58 countries. Prior work shows that competition increases the costs of debt and equity, which reduce the economic profit from investment. Capital constraints, however, may prevent firms from exploiting all positive NPV projects. Using econometric techniques and unique survey data, we avoid potential endogeneity problems common to the study of both capital constraints and product market competition. We show that product market competition increases capital constraints. Auxiliary analyses suggest that asymmetric information is one mechanism driving this linkage. We also show that quantity-of-capital constraints negatively impact firm growth.

Keywords: capital constraints; financial constraints; credit constraints; access to finance; product market competition; bank competition; credit rationing (search for similar items in EconPapers)
JEL-codes: G15 G21 G30 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2015-04
New Economics Papers: this item is included in nep-com
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http://www.cefir.ru/papers/WP215.pdf (application/pdf)

Related works:
Working Paper: Product Market Competition, Capital Constraints and Firm Growth (2015)
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