persistence of initial debt in the long term employment dynamics of new firms this paper investigates whether a firm s future growth is independent of its initial debt structure the non parametric test consists of determining whether the conditional size distribution for firms surviving through early years of life depends upon debt to asset ratio at birth initially i test for initial size dependence in the growth process by applying pakes and ericson 1998 procedure i then test the hypothesis that initial debt to asset ratios are irrelevant to growth of ten year old manufacturing firms i reject the null of independence and find evidence of a non monotonic relationship between age ten conditional size and the initial debt to asset ratio ce texte examine la question a savoir si la croissance future d une firme depend de la structure initiale de sa dette le test non parametrique consiste a determine si la distribution conditionnelle de la taille des firmes qui survivent au cours des premieres annees depend du ratio dette actif a la naissance l auteur teste d abord l independance de la taille initiale et du processus de croissance a l aide de la procedure de pakes et ericson 1998 et ensuite l hypothese que le ratio initial dette actif n est pas pertinent pour expliquer la croissance de firmes manufacturieres qui ont survecu dix ans l hypothese nulle d independance est rejetee et on trouve trace d une relation non monotone entre la taille conditionnelle a dix ans et le ratio initial de la dette sur l actif

the shadow of death analysing the pre exit productivity of portuguese manufacturing firms the pre exiting productivity profile of mature firms relative to survivors is examined along with an evaluation of how productivity affects the probability of exit along various dimensions an empirical approach based on an unbalanced panel of portuguese manufacturing firms covering a 10 year period is used the findings confirm that market selection forces low productivity firms to exit but there is also evidence that a sizeable portion of low productivity firms do not shut down conversely there is a non negligible fraction of high productivity firms that do actually close consistent with some key theoretical predictions our analysis reveals that exiting firms have a falling productivity level over a number of years prior to exit finally the results from the survival model show that both small firms and ones with low productivity are relatively much more likely to exit the market industry and macro environment are also found to have a non negligible role on the exit of mature firms

industry dynamics and the distribution of firm sizes a nonparametric approach the aim of this paper is to analyze the evolution of the size distribution of young firms within some selected industries trying to assess the empirical implications of different models of industry dynamics the model of passive learning jovanovic 1982 the model of active learning ericson and pakes 1995 and the evolutionary model audretsch 1995 we use a non parametric technique the kernel density estimator applied to a data set from the italian national institute for social security inps consisting in 12 cohorts of new manufacturing firms followed for 6 years since the patterns of convergence to the limit distribution are different between industries we conclude that the model of passive learning is consistent with some of them the active exploration model with others the evolutionary model with all of them

comparing the impact of credit constraints on the growth of smes in a transition country with an established market economy in this paper we compare the role of internal finance on the growth of firms between a leading transition country slovenia and an established market economy belgium we find that firms in slovenia are more sensitive to internal financing constraints than their belgian counterparts furthermore we find that de novo firms and firms with long term debt are most constrained and that micro and smes can face great difficulties in accessing external sources of finance foreign firms however are able to raise external finance and consequently their growth is less reliant on the availability of internal finance our findings appear to indicate that although slovenian firms are no longer recipients of soft budget constraints the financial environment is not yet fully functional

effect of credit guarantee policy on survival and performance of smes in republic of korea this study evaluates the effect of credit guarantee on smes at the firm level to estimate the effect of credit guarantee we analyze relations between credit guarantee the survival of guaranteed firms and their productive performance the result indicates that credit guarantee frequency enabled guaranteed firms to achieve good performances in general on the contrary the effect of guarantee amounts is ambiguous in that there is difference between the contemporary effect and the lagged effect therefore we conclude that credit guarantee satisfied partially its goal to alleviate smes difficulty in acquiring finance and to stabilize employment

financial systems financing constraints and investment empirical analysis of oecd countries this paper investigates the influence of cash flow on corporate investment in 11 oecd countries we find that the sensitivity of investment levels to internally available funds differs significantly across countries and is lower in countries with predominantly close bank firm relationships than in countries with predominantly arm s length bank firm relationships at the same time we find no relationship of the levels of financial constraints to indicators of overall financial development our results are consistent with the view that information and incentive problems in the capital market have important effects on corporate investment and that close bank firm relationships can reduce these problems and thus improve the access of firms to external finance

firm growth and liquidity constraints a dynamic analysis using a large unbalanced panel data set of portuguese manufacturing firms surviving over the period from 1990 to 2001 the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth we use a gmm system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth the model is estimated for all size classes including micro firms our findings reveal that smaller and younger firms have higher growth cash flow sensitivities than larger and more mature firms this is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms nevertheless the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect besides firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old finally these results have significant policy implications

no deep pockets some stylized empirical results on firms financial constraints this paper is a survey of recent empirical work on financial constraints faced by firms it is organized as a series of stylized results which mirror what is generally understood about the severity of financial constraints and the effects that they have upon firms the review of the literature shows that a financial constraints are a widespread key concern for firms hindering their ability to carry out their optimal investment and growth trajectories and b the severity of such constraints depends on institutional and firm specific characteristics as well as on the nature of investment projects

investment behavior observable expectations and internal funds we use earnings forecasts from securities analysts to construct a new measure of the neoclassical fundamentals that drive investment spending we find that investment responds significantly to our new measure of fundamentals but is insensitive to cash flow even for firms typically thought to be liquidity constrained these results have two key implications first fundamentals may be more important for investment spending than would be suggested by the results to date from investment q models second the positive cash flow effects obtained in such models may reflect a failure to control properly for fundamentals rather than the presence of financial constraints jel d92 e22

r d and internal finance a panel study of small firms in high tech industries since joseph schumpeter economists have argued that internal finance should be an important determinant of r d expenditures yet almost without exception previous empirical studies have not found evidence of such a relation using newly available data the authors investigate this puzzle with a panel of 179 small firms in high tech industries under each estimation strategy they employ the authors find an economically large and statistically significant relationship between r d investment and internal finance their results are consistent with the view that because of capital market imperfections the flow of internal finance is the principal determinant of the rate at which small high tech firms acquire technology through r d copyright 1994 by mit press

what affects new and established firms expansion evidence from small firms in russia research on financial constraints of very small firms is scarce because it is difficult to observe and measure their transactions previous studies on small enterprises in post communist countries have focused either on the effect of financing constraints on business growth budina et al 2000 economics of transition8 2 453 475 bratkowski et al 2000 economics of transition8 1 101 116 or on the effect of property rights johnson et al 2002 american economic review92 5 1335 1357 this paper provides evidence on both it turns out that financing constraints and property rights considerations affects investment in firms of different age differently younger firms face higher information costs and their expansion is more dependent on the availability of internal funds than is the expansion of older firms this paper also finds that while the financial sector did not channel funds to the most successful businesses there is evidence that loans were given to firms that had more transparent transactions results also indicate that the security of property rights does not influence investment in young firms which is interpreted to mean that only the most efficient entrepreneurs entered the market in older small firms investment is negatively influenced by the index of security of property rights suggesting that these firms might have secured their property rights by bribes improvements in the security of property rights therefore would help more micro enterprises to be born as well as decrease transaction cost of established enterprises

firm foundations and the role of financing constraints improving the economic conditions for small and medium sized firms as well as start ups is high on the agenda of policy makers in this paper we discuss some policy options for fostering the creation of new enterprises the discussion focuses on measures which aim at helping start ups to overcome liquidity constraints in order to provide the background for this discussion the paper provides some new empirical results on the determinants of firm foundations as well as some stylised facts on the occurence of liquidity constraints in west germany we analyse the regional distribution of start up intensity and offer several hypotheses to explain this distribution to a large extent the regional distribution of start ups can be explained by the existing industry structure regional human capital as well as the regional public traffic infrastructure moreover we show that liquidity constraints occur more often in small and young firms

where do financial constraints originate from an empirical analysis of adverse selection and moral hazard in capital markets despite the voluminous and growing literature on financial constraints the origins of the constraints are hardly ever empirically analyzed this paper offers such an analysis we study in particular the empirical prevalence of adverse selection and moral hazard in capital markets using a unique survey data on finnish small and medium sized enterprises smes the survey data suggest that adverse selection is empirically more prevalent than moral hazard in the capital markets that the smes face we also find that of the variables indicating the presence of adverse selection and moral hazard the former has more explanatory power in regressions modeling the availability of external finance to the smes than the latter finally we document that our proxies for adverse selection and moral hazard are inversely related to the age of firms just like peter diamond s 1989 model predicts

a stochastic frontier analysis of financing constraints on investment is shown that investment under financing constraints can be modeled as a one sided deviation from a frictionless investment level and that effects of financing constraints can be identified and quantified by imposing a distributional assumption on the effects panel data on taiwanese manufacturing firms between 1989 and 1996 are used in the estimation it is found that 1 some of the sorting criteria used in the literature do not have significant and monotonic relationships with the degrees of financing constraint resulting in problematic sample separations and 2 the effects of financial liberalization in taiwan are such that the investment efficiency improved over time for a typical firm and the improvement was particularly large for smaller firms

is the small firms loan guarantee scheme hazardous for banks or helpful to small business loan guarantee schemes are an integral part of sme policy in both developed and developing countries yet little has been done to evaluate such programmes particularly in terms of their ability to correct for capital market imperfections this paper uses individual loan data from some 42 000 uk sflgs backed debt contracts to empirically test the default specification outlined in the seminal credit rationing paper of stiglitz and weiss 1981 the results show that default failure does increase with the banks cost of capital but not with the government premium in addition default appears to be determined by a whole host of other factors not typically considered in the credit rationing literature

new firm survival new results using a hazard function a limitation of audretsch s 1991 study of new firm survival was the level of aggregation to industries this precluded linking establishment specific characteristics such as organizational structure and size to post entry performance the purpose of this paper is to relate the post entry performance of individual establishments not only to their technological and market structure environments but also to establishment specific characteristics we do this by estimating a hazard duration function for more than 12 000 individual establishments in u s manufacturing started in 1976 by tracking their subsequent performance over a ten year period we conclude that establishment specific characteristics which audretsch was not able to capture in his earlier study play an important role in shaping the exposure to risk confronting new establishments copyright 1995 by mit press

asymmetry in beef lamb and pork farm retail price transmission in australia abstract the hypothesis of asymmetry in price transmission within the australian meat market is tested using monthly data for beef lamb and pork prices at different market levels over the period 1971 1988 the results indicate that asymmetrical price response is a strategy used by beef and lamb retailers and wholesalers to adjust to changing input prices but not by pork retailers and wholesalers this difference is perhaps unexpected given the similarity in behaviours relating to price levelling in this market the high cross price elasticities of demand between these meats and the relatively greater degree of concentration in the pork market

pre entrepreneurial income cash flow growth and survival of startup businesses model and tests on u k data a target income human capital model of startup survival and growth is derived and tested the objective of the entrepreneur is to produce an independent source of income for him herself to replace income from previous employment target income is a function of pre entrepreneurial income and human capital represented by age the model predicts that higher pre income entrepreneurs and more mature individuals will grow faster to achieve these targets and that growth is an ambiguous function of size it also predicts that these same individuals and businesses that start larger will be more likely to survive the key results of the empirical analysis are that a businesses run by proprietors with higher pre entrepreneurial incomes do indeed grow faster than other startups but have no greater survival prospects and b businesses run by mature proprietors possess greater longevity we conclude that business income targets in practice constitute a significant motivation for startup growth and that the human capital represented by age plays no additional role however proprietor age rather than pre income determines survival despite the fact that pre income and age are positively correlated both with each other and with growth

financial liberalisation and private investment evidence from turkey abstract the paper tests for shifts in aggregate private investment functions for turkey as a consequence of financial liberalisation in the early 1980s results for a neoclassical model in error correction form suggest that the short run dynamics of investment were altered by financial liberalisation with reduced sensitivity to the availability of credit but with no evidence of increased sensitivity to the cost of capital estimation of an euler equation model indicates that credit constraints remained binding after liberalisation we interpret this as evidence of significant structural change to private investment functions after financial liberalisation but with credit constraints continuing to operate

the relaxation of financing constraints by the initial public offering of small manufacturing firms capital market imperfections such as information asymmetry increase the cost of external funds compared to that of internal funds this phenomenon creates financing constraints limiting the availability of external funds and making corporate investment excessively sensitive to cash flow this study analyzes the effect of financing constraints on the investment by comparing the financial behavior of korean firms before and after their stocks are newly listed on a stock exchange the results show that the sensitivity of investment to cash flow will be higher during the period before initial public offering ipo than after ipo in particular the effect of financing constraints relaxation by ipo is more prominent in small than in large manufacturing firms

the impact of negative cash flow and influential observations on investment cash flow sensitivity estimates abstract kaplan and zingales quart j econ 112 1997 169 and clearly j finance 54 2 1999 673 diverge from the large literature on investment cash flow sensitivity by showing that investment is most sensitive to cash flow for the least financially constrained firms we examine if this result can be explained by the fact that when firms are in sufficiently bad shape incurring cash losses investment cannot respond to cash flow we find that while cleary s results can be explained by such negative cash flow observations the kaplan zingales results are driven more by a few influential observations in a small sample we also record a decline in investment cash flow sensitivity over the 1977 1996 period particularly for the most constrained firms

investment and financial constraints in transition economies micro evidence from poland the czech republic bulgaria and romania we investigate to what extent firm investment in transition countries is sensitive to internal finance we find that firms in bulgaria and romania are less sensitive to internal financing constraints in contrast to firms in poland and the czech republic a likely explanation is that bulgaria and romania experience a stronger persistence of soft budget constraints than the other two more advanced countries

product differentiation competition and international trade in this paper the two workhorse theories of international trade under imper fect competition krugman s taste for variety model and brander s strategic intra industry trade model are integrated into a single analytical framework a quadratic utility function allows for a nesting of these two theories by postulating a consumer taste for variety over differentiated products where the extent of product differentiation is linked to the intensity of strategic interaction among firms the model yields intuitive predictions on the effects of the degree of product differentiation on the volume of trade and on the composition of the gains from trade under imperfect competition jel classifi cation f12

does firm size matter evidence on the impact of liquidity constraints on firm investment behavior in germany abstract this paper examines the link between liquidity constraints and investment behavior for german firms of different sizes from 1970 to 1986 results indicate that medium sized firms appear to be more liquidity constrained in their investment behavior than either the smallest or largest firms in the study suggesting that the unique german infrastructure designed to assist the small firm has indeed succeeded in alleviating to some degree such liquidity constraints findings also support the hypothesis that the emerging competition and internationalism which characterized the german financial markets in the 1980s have been improving access to capital for some groups of firms

liquidity constraint on the production of firms in southern italy the paper shows how small and medium enterprises located in the less developed regions of southern italy face higher liquidity constraints compared to the firms in the central northern italian regions the reasons for these constraints are the undersized nature of firms and higher risk of business activity consequently credit rationing is more extensive in order to analyse the effects on the potential growth of firms production a simple model is presented followed by estimates for growth the results confirm the existence of a bottleneck of financial resources devoted to current finance production that limits the accumulation of working capital even when faced with favourable market opportunities

does local financial development matter we study the effects of differences in local financial development within an integrated financial market we construct a new indicator of financial development by estimating a regional effect on the probability that ceteris paribus a household is shut off from the credit market by using this indicator we find that financial development enhances the probability an individual starts his own business favors entry of new firms increases competition and promotes growth as predicted by theory these effects are weaker for larger firms which can more easily raise funds outside of the local area these effects are present even when we instrument our indicator with the structure of the local banking markets in 1936 which because of regulatory reasons affected the supply of credit in the following 50 years overall the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

the impact of cash flows and firm size on investment the international evidence abstract this paper examines the degree to which cash flow availability influences firm investment in six oecd countries in particular we are interested in the extent to which the reliance on internal funds is affected by firm size since there is general agreement that smaller firms have less access to external capital markets and thus should be more affected by the availability of internal funds earlier work has concluded that the documented positive relationship between cash flow and investment is evidence of the existence of financial constraints we first examine all firms regardless of size in each country and we find that the amount of corporate investment is affected by internal resources in all six countries that is internal financing affects firm investment we then repeat the analysis segmenting the sample using three measures of firm size contrary to our a priori expectations we find that the cash flow investment sensitivity is generally highest in the large firm size group and smallest in the small firm size group we deduce that the explanations for these findings are grounded in managerial agency considerations and in the greater flexibility enjoyed by large firms in timing their investments thus we conclude that the degree of sensitivity of a firm s investments to its cash flows cannot be interpreted as an accurate measure of its access to capital markets as do kaplan s zingales l 1997 the quarterly journal of economics 169 215 since small firms are known to have less access to external markets