Financial Constraints and Capacity Adjustment: Evidence from a Large Panel of Survey Data
Ulf von Kalckreuth
Deutsche Bundesbank - Economic Research Centre
Economica, Vol. 73, No. 292, pp. 691-724, November 2006
The focus of this study is on (i) the interaction between financial constraints and capacity restrictions, and (ii) the difference between large and small firms. Using CBI data to provide information on the financial constraints of UK manufacturers, we develop a new identification scheme based on the link between financial constraints and the prevalence and duration of capacity gaps. Two important results emerge: first, financially constrained firms take longer to close capacity gaps; second, small firms close capacity gaps faster than large firms do, but financial constraints seem to be of greater relevance to their adjustment dynamics.
Number of Pages in PDF File: 34
Date posted: October 12, 2006
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