Journal Article

Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry

Giorgio Fagiolo and Alessandra Luzzi

in Industrial and Corporate Change

Volume 15, issue 1, pages 1-39
Published in print February 2006 | ISSN: 0960-6491
Published online February 2006 | e-ISSN: 1464-3650 | DOI: https://dx.doi.org/10.1093/icc/dtj001
Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry

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The article investigates whether liquidity constraints affect firm size and growth dynamics of Italian manufacturing firms. Panel-data regressions and distribution analyses show that (i) liquidity constraints engender a negative effect on growth once one controls for size; (ii) smaller firms grow more after controlling for liquidity constraints; and (iii) the stronger liquidity constraints, the more size negatively affects firm growth. Furthermore, we find that financial constraints help in better explaining the relationship between firm growth and age, conditional on size. Finally, our data indicate that size distributions depart from log-normality, and growth rates are well approximated by Laplace densities.

Journal Article.  11834 words.  Illustrated.

Subjects: Industrial History ; Business History ; Innovation ; Technological Change; Research and Development ; Industry Studies

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