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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 26 de 2013


Do Size, Age and Dividend Policy Provide Useful Measures of Financing

Constraints? New Evidence from a Panel of Portuguese Firms

Carlos Carreira
GEMF/Faculdade de Economia da Universidade de Coimbra

Filipe Silva
OCDE e GEMF/Faculdade de Economia da Universidade de Coimbra


This paper investigates if firms’ size and age, and dividend payment can work as good proxies of financial constraints faced by firms. The motivation is that, these proxies have been used by several authors to sort and distinguish firms according to a level of financial distress. To conduct our empirical tests, we make use of two different approaches in order to obtain robust results—first, we estimate the sensitivity of investment to cash-flow, then we employ the sensitivity of cash stocks to cash-flow. Our results, while supporting previous literature on the inverse relationship between size, dividend policy and financial constraints, they cast some doubts on previously devised relationships between age and the level of constraints. Additionally, our results suggest that, contrary to what is commonly accepted, the relationship between size and financial constraints seems to be in general U-shaped.

JEL Classification: L8; D92; G32; L00; L2.

Financial constraints; Firm size; Firm age; Dividend policy; Firm-level studies. 

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