Financial Constraints: Models and Evidence from International Data
28 Pages Posted: 14 Jul 2009
Abstract
This paper suggests a two-stage methodology to classify firms as financially constrained or unconstrained. First, we develop a financial constraints model that objectively separates over 50% of all firms, and enables us to classify the remaining firms by using logit analysis. Our methodology yields classification results in agreement with the financial development of the economic areas studied (the US, Japan and the EU). Furthermore, the suggested methodology substantially improves the classification of firms, since whatever the correct classification percentage yielded by logit analysis, previous application of our Financial Constraints Model allows the researcher to obtain a good final classification.
Keywords: Firm investment, Financial constraints, Logit analysis
JEL Classification: G31
Suggested Citation: Suggested Citation