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Financial constraints and firm efficiency: Further empirical evidence

Author

Listed:
  • Kalatzis, Aquiles E.G.
  • Martins-Filho, Carlos
  • Ribeiro, Antônio C.H.

Abstract

In this paper, we empirically explore the impact of financial constraints on firms’ efficiency. To this end, we estimate a stochastic production frontier model, addressing input endogeneity and incorporating “environmental” variables that may impact efficiency. Using four distinct financial constraint indexes, we show that firms facing such constraints may be more efficient. This can be attributed to the accumulation of internal funds as a precautionary measure and improved resource allocation. In addition, our findings highlight differential impacts across financial constraint indexes, shedding light on the complex relationship between financial constraints and firms’ efficiency levels.

Suggested Citation

  • Kalatzis, Aquiles E.G. & Martins-Filho, Carlos & Ribeiro, Antônio C.H., 2025. "Financial constraints and firm efficiency: Further empirical evidence," Finance Research Letters, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015538
    DOI: 10.1016/j.frl.2024.106524
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    More about this item

    Keywords

    Financial constraints; Efficiency; Stochastic production frontiers;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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