Financing Constraints and Product Market Decisions: the Role of Production Cycles

63 Pages Posted: 24 Sep 2020 Last revised: 13 Apr 2024

See all articles by Diogo Mendes

Diogo Mendes

Stockholm School of Economics; Swedish House of Finance

Date Written: April 12, 2024

Abstract

I study how financial frictions affect product market decisions. As products have different production cycles and generate cash flow at different maturities, firms may adjust product mix to alleviate financing constraints. I use the wine sector as laboratory because product decisions can be identified and linked to cash flow maturity, and exploit a banking regulation which impacted on credit availability. I find that credit-constrained firms adjust product mix in response to the shock, shifting from long to shorter cash flow maturity products. My results suggest the impact of financing constraints on product markets are exacerbated with longer, less-flexible, production cycles.

Keywords: Financing Constraints, Product Mix, Production Cycles, Cash Conversion Cycle

JEL Classification: D25, G30, G31, L15

Suggested Citation

Mendes, Diogo, Financing Constraints and Product Market Decisions: the Role of Production Cycles (April 12, 2024). Swedish House of Finance Research Paper No. 20-19, Available at SSRN: https://ssrn.com/abstract=3596061 or http://dx.doi.org/10.2139/ssrn.3596061

Diogo Mendes (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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