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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 15 de 2010


Measuring Firms’ Financial Constraints:

Evidence for Portugal through Different Approaches

Filipe Silva

Faculdade de Economia, Universidade de Coimbra

Carlos Carreira
GEMF / Faculdade de Economia, Universidade de Coimbra

Today's shortage of financial resources calls for the attention of researchers to the problem of financial constraints faced by firms. In this paper we analyse firms' financial constraints by estimating both investment-cash flow sensitivities and cash-cash flow sensitivities upon a large unbalanced panel of Portuguese firms in order to obtain robust findings. Additionally, we classify firms according to characteristics that are generally believed to indicate the presence of constraints (size, age and dividend payment). Our results clearly show that Portuguese firms are, in general, financially constrained. Furthermore, we verify that such constraints are more severe for certain groups of firms, in particular those firms that are smaller and do not pay dividends. However, we do not find evidence that age as a good proxy for financial constraints. Finally, we cast some doubts on the direct implementation of the SA index as a measure of financial constraints.

JEL Classification: D92; G32; L00; L2.

Keywords: Financial constraints; Firm-level studies; Portugal.

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