Capital market financing and firm growth

Abstract

This paper studies whether there is a connection between finance and growth at the firm level. It employs a new dataset of 150,165 equity and bond issuances around the world, matched with income and balance sheet data for 62,653 listed firms in 65 countries over 1990-2016. Three main patterns emerge from the analyses. First, firms that choose to issue in capital markets use the funds raised to grow by enhancing their productive capabilities, increasing their tangible and intangible capital and the number of employees. Growth accelerates as firms raise funds. Second, the faster growth is more pronounced among firms that are more likely to face tighter financing constraints, namely, small, young, and high-R&D firms. Third, capital market issuances are associated with faster growth among firms located in countries with more developed capital markets relative to banks. Capital markets are also comparatively effective at allowing financially constrained firms to raise capital.

High-Speed Railway Opening and Corporate Fraud

“…Substantial research demonstrates the indispensable link between capital markets and economic development [48,49]. The capital market plays a decisive role in resource allocation and provides an important channel for direct financing of enterprises.…”

How Does Environmental Data from ESG Concept Affect Stock Returns: Case of the European Union and US Capital Markets

“…The second group of articles investigates market information in relation to ESG data, such as stock return and price [21][22][23][24][25][26][27][28][29][30][31][32][33][34][35]. The third set of studies examines the incorporation of accounting and market data into a single model [12][13][14][15][16][17][36][37][38][39][40][41][42][43][44][45].…”

Access to Capital Markets and the Geography of Productivity Leaders and Laggards

“…Blundell et al (1995) propose using firmspecific 'level effects' based on historic patenting activity, and we follow this alternative to capture firm-level heterogeneity, including firm-level experience, absorptive capacity and other unobservables. Given the strong link found in the literature between innovation and financing (Didier et al, 2021), historic patenting activity allows us to control for those unobserved factors that could drive both access to finance and firm performance. Finally, we control for firm size given the importance and debated role firm size has on performance and access to capital markets: recent literature has in fact shown that smaller firms' faster growth than larger ones depends on their access to capital markets (Didier et al, 2016).…”