Rivals’ Competitive Activities, Capital Constraints, and Firm Growth

49 Pages Posted: 14 Apr 2015 Last revised: 4 Oct 2018

See all articles by Mikael C. Bergbrant

Mikael C. Bergbrant

St. Johns University

Delroy M. Hunter

University of South Florida

Patrick J. Kelly

University of Melbourne - Department of Finance

Date Written: June 23, 2018

Abstract

We examine the impact of rivals’ competitive activities on firms’ quantity-of-capital constraints in 60 countries. Prior work shows that competition increases the costs of debt and equity, which reduce the economic profit from investment. Capital constraints, however, may prevent firms from exploiting all positive NPV projects. Using unique survey data and several econometric techniques, we address endogeneity problems that affect both capital constraints and rivals’ competitive activities. We find that rivals’ competitive activities are positively associated with firms’ capital constraints and are more strongly correlated with capital constraints than banking sector competition. We also show that quantity-of-capital constraints are negatively related to firm growth, incremental to the cost of capital.

A revised version of this article is now accepted at the Journal of Banking and Finance.

Keywords: capital constraints; financial constraints; credit constraints; access to finance; product market competition; bank competition; credit rationing

JEL Classification: G15, G21, G30

Suggested Citation

Bergbrant, Mikael C. and Hunter, Delroy M. and Kelly, Patrick J., Rivals’ Competitive Activities, Capital Constraints, and Firm Growth (June 23, 2018). Available at SSRN: https://ssrn.com/abstract=2594218 or http://dx.doi.org/10.2139/ssrn.2594218

Mikael C. Bergbrant

St. Johns University ( email )

8000 Utopia Parkway
Queens, NY 11439
United States
8134476288 (Phone)

HOME PAGE: http://www.bergbrant.com

Delroy M. Hunter

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

Patrick J. Kelly (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

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