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Can Financing Constraints Explain the Evolution of the Firm Size Distribution?

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  • Ralf R. Meisenzahl

    (Federal Reserve Board)

Abstract

This paper exploits a comprehensive data set on business credit decisions to examine the importance of financing constraints for the evolution of the firm size distribution. The survey of small business finances provides information on whether a firm was in need of external financing. Firms without access to external financing—either because they were denied credit or because they did not apply for credit because they expected to be denied credit—are significantly smaller. To tighten the link between financing constraints and firm dynamics, I estimate the effect of financing constraints on subsequent employment growth and find that firms without access to external financing exhibit up to 3.5 % points lower annual employment growth than do their unconstrained counterparts. These findings suggest that financing constraints are a potentially important factor for understanding firm dynamics.

Suggested Citation

  • Ralf R. Meisenzahl, 2016. "Can Financing Constraints Explain the Evolution of the Firm Size Distribution?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(2), pages 123-147, March.
    • Handle: RePEc:kap:revind:v:48:y:2016:i:2:d:10.1007_s11151-015-9498-4
    DOI: 10.1007/s11151-015-9498-4
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    Cited by:

    1. Lina Cortés & Juan M. Lozada & Javier Perote, 2019. "Firm size and concentration inequality: A flexible extension of Gibrat’s law," Documentos de Trabajo de Valor Público 17205, Universidad EAFIT.
    2. Alex Coad & Julian S. Frankish & Albert N. Link, 2020. "The Economic Contribution of a Cohort of New Firms Over Time," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 519-536, November.
    3. Sugata Marjit & Moushakhi Ray, 2020. "Asset Level Heterogeneity, Competition and Export Incentives: The Role of Credit Rationing," CESifo Working Paper Series 8208, CESifo.
    4. Christos Axioglou & Nicos Christodoulakis, 2021. "Which firms survive in a crisis? Investigating Gibrat’s Law in Greece 2001–2014," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(2), pages 159-217, June.
    5. Lina M Cortés & Juan M Lozada & Javier Perote, 2021. "Firm size and economic concentration: An analysis from a lognormal expansion," PLOS ONE, Public Library of Science, vol. 16(7), pages 1-21, July.
    6. Christos Axioglou & Nicos Christodoulakis, 2019. "Which firms survive in a crisis? Corporate dynamics in Greece 2001-2014," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 133, Hellenic Observatory, LSE.
    7. Marjit, Sugata & Ray, Moushakhi, 2021. "Competition, asset build up and export incentives: The role of imperfect credit market," Journal of Asian Economics, Elsevier, vol. 77(C).
    8. Sebastian Doerr, 2019. "Unintended side effects: stress tests, entrepreneurship, and innovation," BIS Working Papers 823, Bank for International Settlements.

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    More about this item

    Keywords

    Financing constraints; Firm size distribution; Firm growth;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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