We use a large firm-level panel data set to analyze the relevance of liquidity constraints on firm growth in Italy. In most European countries mainstream financial institutions are scantly able to provide affordable credit facilities to small firms. Thus, these firms are forced to finance their growth almost exclusively through retained earnings. We estimate a dynamic version of Gibrat-law, incorporating cash flow as a measure of financial constraints, for different size classes of SME and for several industries in manufacturing and service sectors. The findings show that, in general, small manufacturing firms have higher growth-cash flow sensitivities with respect to medium firms without relevant differences between the four Pavitt technological sectors considered. Conversely, our results highlight, for the services, a significant heterogeneity in the impact of liquidity constraints on firm growth. In particular, for small firms that belong to Knowledge Intensive Market Services liquidity constraints appear relatively more severe in comparison with what occurs in the traditional service industries. Validation of Gibrat-law in the services suggest that an important group of industries, with a superior capacity of encouraging firm’s competitiveness, need more financial resources to promote their growth and that of the manufacturing sectors with whom they are connected.
Firm growth and liquidity constraints in manufacturing and service sectors: a comparative analysis at individual industrial level
DONATI, Cristiana
2014
Abstract
We use a large firm-level panel data set to analyze the relevance of liquidity constraints on firm growth in Italy. In most European countries mainstream financial institutions are scantly able to provide affordable credit facilities to small firms. Thus, these firms are forced to finance their growth almost exclusively through retained earnings. We estimate a dynamic version of Gibrat-law, incorporating cash flow as a measure of financial constraints, for different size classes of SME and for several industries in manufacturing and service sectors. The findings show that, in general, small manufacturing firms have higher growth-cash flow sensitivities with respect to medium firms without relevant differences between the four Pavitt technological sectors considered. Conversely, our results highlight, for the services, a significant heterogeneity in the impact of liquidity constraints on firm growth. In particular, for small firms that belong to Knowledge Intensive Market Services liquidity constraints appear relatively more severe in comparison with what occurs in the traditional service industries. Validation of Gibrat-law in the services suggest that an important group of industries, with a superior capacity of encouraging firm’s competitiveness, need more financial resources to promote their growth and that of the manufacturing sectors with whom they are connected.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
