Bank lending, financing constraints and SME investment
Francisco Rodriguez-Fernandez and
Gregory Udell ()
Authors registered in the RePEc Author Service: Santiago Carbo Valverde () and
Francisco Rodríguez Fernández ()
No WP-08-04, Working Paper Series from Federal Reserve Bank of Chicago
SME investment opportunities depend on the level of financing constraints that firms face. Earlier research has mainly focused on the controversial argument that cash flow-investment correlations increase with the level of these constraints. We focus on bank loans rather than cash flow. Our results show that investment is sensitive to bank loans for unconstrained firms but not for constrained firms, and trade credit predicts investment, but only for constrained firms. We also find that unconstrained firms use bank loans to finance trade credit provided to other firms. Our results illustrate alternative mechanisms that firms employ both as borrowers and lenders.
Keywords: Bank loans; Investments (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-ent
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