Identifying financial constraints

Arbeitspapier

We propose a new methodology to recover firm-time varying financial constraints from firms' production behavior. We model financial constraints as the profitability that firms forgo when budget constraints on production inputs bind, impeding them from using the optimal level of inputs and technology. We estimate and validate our measure using unique data combining firms' balance sheets with survey information on self-reported financial constraints, like loan rejections. In contrast to three popular indices of financial constraints, our measure recovers financial constraints beyond observable firm characteristics, recovers cross-sectional and time-varying stylized facts of financial constraints, and is applicable to both public and private firms.

Object Details

• ISBN: 978-92-899-4063-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2420

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Financial Economics: General ; Corporate Finance and Governance: General ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Financial constraints ; identification ; access to finance ; indicators ; production function

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cherchye, Laurens ; De Rock, Bram ; Ferrando, Annalisa ; Mulier, Klaas ; Verschelde, Marijn
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2020

Further information

• DOI: doi:10.2866/890948
• Handle: http://hdl.handle.net/10419/229034
• Last update: 10.03.2025, 11:42 AM CET