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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 12 de 2012


Where Are the Fragilities?

The Relationship Between Firms' Financial Constraints, Size, and Age

Carlos Carreira

GEMF and Faculty of Economics, University of Coimbra

Filipe Silva
GEMF and Faculty of Economics, University of Coimbra

Recessions and financial crisis increase financial constraints and disproportionally affect constrained firms. This paper investigates the differences in firms’ financial constraints between sectors using a cash to cash-flow rationale (Almeida et al., 2004) and a firm specific index of constraints (Hovakimien and Hovakimien, 2009). Interpreting higher sensitivities of cash to cash flow as evidence of higher constraints, we find that the relationships between firm size, firm age and constraints are, in general, non-monotonic and not robust to economic sector disaggregation, which contrasts with previous findings.

JEL Classification: D92; G32; L00; L2.

Financial Constraints; Financial Crises; Firm Size; Firm Age; Firm-level Studies; Portugal.

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