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The impact of financial constraints on firm survival and growth

Author

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  • Patrick Musso

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Stefano Schiavo

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

We propose a new approach for identifying and measuring the degree of financial constraint faced by firms and use it to investigate the effect of financial constraints on firm survival and development. Using panel data on French manufacturing firms over the 1996–2004 period, we find that (1) financial constraints significantly increase the probability of exiting the market, (2) access to external financial resources has a positive effect on the growth of firms in terms of sales, capital stock and employment, (3) financial constraints are positively related with productivity growth in the short-run. We interpret this last result as the sign that constrained firms need to cut costs in order to generate the resources they cannot raise on financial markets.

Suggested Citation

  • Patrick Musso & Stefano Schiavo, 2008. "The impact of financial constraints on firm survival and growth," SciencePo Working papers Main hal-03417056, HAL.
    • Handle: RePEc:hal:spmain:hal-03417056
    DOI: 10.1007/s00191-007-0087-z
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    More about this item

    Keywords

    Financial constraints; Firm growth; Firm survival;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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