Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/89343 
Year of Publication: 
2004
Series/Report no.: 
LEM Working Paper Series No. 2004/08
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
Abstract: 
The paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of Italian manufacturing firms. We run standard panel-data Gibrat regressions, suitably expanded to take into account liquidity constraints (proxied by cash flow scaled by firm sales). Moreover, we characterize the statistical properties of firms size, growth, age, and (scaled) cash flow distributions. Pooled data show that: (i) liquidity constraints engender a negative, statistically significant, effect on growth once one controls for size; (ii) smaller firms grow more (and experience more volatile growth patterns) after controlling for liquidity constraints; (iii) the stronger liquidity constraints, the more size negatively affects firm growth. We find that pooled size distributions depart from log-normality and growth rates are well approximated by fat-tailed, tent-shaped (Laplace) densities. We also study the evolution of growth-size distributions over time. Our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years. Finally, firms who were young and strongly liquidity-constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity-constrained.
Subjects: 
Firm Size
Liquidity Constraints
Firm Growth
Investment
Gibrat Law
JEL: 
L11
G30
D21
Document Type: 
Working Paper

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