Abstract

http://ssrn.com/abstract=259864
 
 

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Is the Growth of Small Firms Constrained by Internal Finance?


Bruce C. Petersen


Washington University

Robert E. Carpenter


University of Maryland, Baltimore County - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Richmond


Review of Economics and Statistics, Forthcoming

Abstract:     
This paper examines the long-standing theory that small firm growth is often constrained by the quantity of internal finance. Under plausible assumptions, when financing constraints are binding, an additional dollar of internal finance should generate slightly more than an additional dollar of growth in assets. This quantitative prediction should not hold for the relatively small number of firms with access to external equity. We test these predictions with a panel of over 1600 small firms and find that the growth of most firms is constrained by internal finance. Our results have implications for several different research literatures, including models of firm growth.

Keywords: Firm Growth, Investment, Finance, Small Firms, Equity Finance, Cash Flow

JEL Classification: LO, D9

Accepted Paper Series


Not Available For Download

Date posted: March 27, 2001  

Suggested Citation

Petersen, Bruce C. and Carpenter, Robert E., Is the Growth of Small Firms Constrained by Internal Finance?. Review of Economics and Statistics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=259864

Contact Information

Bruce Clayton Petersen
Washington University ( email )
Campus Box 1133
One Brookings Drive
Saint Louis, MO 63130-4899
United States
314-935-5643 (Phone)
Robert E. Carpenter (Contact Author)
University of Maryland, Baltimore County - Department of Economics ( email )
1000 Hilltop Circle
Baltimore, MD 21250
United States
410-455-6590 (Phone)
410-455-1054 (Fax)
Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )
P.O. Box 27622
Richmond, VA 23261
United States
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