Is Finance the Most Binding Constraint or Complaint?

38 Pages Posted: 2 Jun 2022

See all articles by Camila Figueroa

Camila Figueroa

affiliation not provided to SSRN

gonzalo iberti

affiliation not provided to SSRN

Julio Riutort

Universidad Adolfo Ibáñez

Rodrigo Andres Wagner

UAI Business School ; Growth Lab - Harvard University (Center for Int. Development)

Date Written: December 23, 2019

Abstract

In global surveys, firms tend to state that access to finance is their main obstacle to operate or grow. But complaining about finance does not necessarily imply the firm is financially constrained. We exploit the idea that firms facing external finance constraints should reinvest more heavily in their internal funds, as many canonical models predict. Using global firm surveys (2006-2019), we find that the profit reinvestment rate is correlated to various revealed measures of constraints. In fact, reinvestment is higher for firms that are young, small, have less tangible assets, and have greater external finance needs. Most important for our central point, we do not find more reinvestment for firms that complain about finance being an obstacle. This lack of a higher reinvestment among complaining firms is robust to alternative measures of profit reinvestment and a number of alternative confounders. Taken together, our findings suggest that these self-assessments of a “main obstacle” might be due to reasons other than constraints in financing capital expenditures. Private sector growth analysis should not rely solely on stated measures of financial obstacles.

Suggested Citation

Figueroa, Camila and iberti, gonzalo and Riutort, Julio and Wagner, Rodrigo Andres, Is Finance the Most Binding Constraint or Complaint? (December 23, 2019). Available at SSRN: https://ssrn.com/abstract=4118028 or http://dx.doi.org/10.2139/ssrn.4118028

Camila Figueroa

affiliation not provided to SSRN

Gonzalo Iberti

affiliation not provided to SSRN

Julio Riutort

Universidad Adolfo Ibáñez ( email )

Diagonal Las Torres 2640
Peñalolén
Santiago
Chile
56-2-2331-1077 (Phone)

HOME PAGE: http://https://sites.google.com/site/jriutort/

Rodrigo Andres Wagner (Contact Author)

UAI Business School

Diagonal Las Torres 2700
Penalolen
Santiago
Chile

HOME PAGE: http://https://sites.google.com/site/rodrigoawagner

Growth Lab - Harvard University (Center for Int. Development) ( email )

79 John F. Kennedy Street
Cambridge, MA MA 02138
United States

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