2013/13 | LEM Working Paper Series | ||||||||||||||||
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Financial Fragility and the Distribution of Firm Growth Rates |
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Giulio Bottazzi, Angelo Secchi |
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Keywords | |||||||||||||||||
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Firm growth, Quantile regression, Financial constraints, Firm size dis-
tribution, Credit risk ratings
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JEL Classifications | |||||||||||||||||
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L11, C14, D20, G30
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Abstract | |||||||||||||||||
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Analyzing a comprehensive database of limited liability
manufacturing firms this paper investigates the relation between a
firm's financial situation and its conditional expected growth
rate. Specifically, using quantile regressions, we obtain a
quantitative characterization of this relation for different
quantiles of the growth rates distribution. We find that simple
location-shift models, as for instance the OLS, provide a poor and
potentially misleading representation of the growth-finance
relation. Indeed, the vast majority of the explanatory variables
considered are associated with modifications in the support of the
growth rates distribution (scale-effect), even when the relation of
the same variables with the expected growth is negligible. Moreover,
we show that financial conditions impact differently on the growth
dynamics of young and old firms. Finally, our investigations reveal
that the results obtained with quantile regressions appear robust
with respect to possible mispecifications of the empirical model.
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