Article (Scientific journals)
The Sources of Financing Constraints
Steri, Roberto; Nikolov, B.; Schmid, L.
2021In Journal of Financial Economics
Peer reviewed


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Abstract :
[en] In order to identify the relevant sources of firms' financing constraints, we ask what financial frictions matter for corporate policies. To that end, we build, solve, and estimate a range of dynamic models of corporate investment and financing, embedding a host of financial frictions. We focus on limited enforcement, moral hazard, and trade-off models. All models share a common technology, but differ in the friction generating financing constraints. Using panel data on Compustat firms for the period 1980-2015 and a more recent dataset on private firms from Orbis, we determine which features of the observed data allow to distinguish among the models, and we assess which model or model combination performs best at rationalizing observed corporate investment and financing policies across various samples. Our tests, based on empirical policy function benchmarks, favor trade-off models for larger Compustat firms, limited commitment models for smaller firms, and moral hazard models for private firms. Our estimates point to significant financing constraints due to agency frictions and highlight the importance of identifying their relevant sources for firm valuation.
Disciplines :
Author, co-author :
Steri, Roberto ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF)
Nikolov, B.
Schmid, L.
External co-authors :
Language :
Title :
The Sources of Financing Constraints
Publication date :
April 2021
Journal title :
Journal of Financial Economics
Peer reviewed :
Peer reviewed
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since 11 October 2022


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