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Identifying financial constraints

Annalisa Ferrando, Klaas Mulier, Marijn Verschelde (), Laurens Cherchye and Bram De Rock

No 2420, Working Paper Series from European Central Bank

Abstract: We propose a new methodology to recover firm-time varying financial constraints from firms’ production behavior. We model financial constraints as the profitability that firms forgo when budget constraints on production inputs bind, impeding them from using the optimal level of inputs and technology. We estimate and validate our measure using unique data combining firms’ balance sheets with survey information on self-reported financial constraints, like loan rejections. In contrast to three popular indices of financial constraints, our measure recovers financial constraints beyond observable firm characteristics, recovers cross-sectional and time-varying stylized facts of financial constraints, and is applicable to both public and private firms. JEL Classification: E44, G00, G30, G32

Keywords: access to finance; financial constraints; identification; indicators; production function (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-bec and nep-eff
Note: 235236
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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