Does firm size matter? Evidence on the impact of liquidity constraints on firm investment behavior in Germany

Abstract

This paper examines the link between liquidity constraints and investment behavior for German firms of different sizes from 1970 to 1986. Results indicate that medium sized firms appear to be more liquidity constrained in their investment behavior than either the smallest or largest firms in the study, suggesting that the unique German infrastructure designed to assist the small firm has indeed succeeded in alleviating, to some degree, such liquidity constraints. Findings also support the hypothesis that the emerging competition and internationalism which characterized the German financial markets in the 1980's, have been improving access to capital for some groups of firms. ZusammenfassungDieser Beitrag untersucht die Beziehung zwischen Liquiditätsbeschränkungen und Investitionsverhalten deutscher Unternehmen unterschiedlicher Größen im Zeitraum 1970 bis 1986. Die Ergebnisse deuten darauf hin, dass das Investitionsverhalten mittlerer Unternehmen stärker von der Liquiditätsseite her beschränkt ist als das der in der Untersuchung berücksichtigten kleinen und großen Unternehmen. Dies spricht dafür, dass die besondere deutsche Infrastruktur, die auf eine Unterstützung kleiner Unternehmen ausgerichtet ist, derartige Liquiditätsbeschränkungen mit Erfolg in gewissem Maße gelockert hat. Die Ergebnisse unterstützen auch die Hypothese, dass der stärkere Wettbewerb und die Internationalisierung, die die deutschen Finanzmärkte in den achtziger Jahren kennzeichneten, einigen Gruppen von Unternehmen den Zugang zu Kapital verbesserten.

Dynamics of investment and firm performance: comparative evidence from manufacturing industries

“…substitutable, which in turn is evidence of the existence of financial constraints to investment. Such result is consistent with previous findings on the subject (Schiantarelli, 1996;Audretsch and Elston, 2002;Whited, 2006). 27 The graph on the left of Figure 7 plots, for Italy and France, the effects on the probability to observe a spike for an hypothetical firm at the means of independent variables and whose profitability varies, taking values at each distribution decile.…”

“…In this framework, two possible outcomes are associated with such dependence on external financing. First, investment activity might be limited if firms are financially constrained, see among the others Schiantarelli (1996); Audretsch and Elston (2002);Whited (2006). That is, the desired level of investment for a firm is curbed (set to zero) because of the insufficient (complete lack of) access to external finance.…”

Firm Growth and Liquidity Constraints: A Dynamic Analysis

“…Elston (2002) finds that cash flow, after controlling for size and age, positively affects growth of German Neuer-Markt firms. On the other hand, Audretsch and Elston (2002) show that medium-sized German firms are more liquidity constrained (in their investment behaviour) than either the smallest or the largest ones. Contrary to Carpenter and Petersen's (2002) model, this specification is better suited to being applied to a sample of unquoted firms because we cannot use the Tobin's q that captures the investment opportunities.…”

Assessing Determinants on Job Creation at the Firm Level: Swedish Micro Firm Data

“…Consequently, firms' employment decisions, like any fixed capital investment decision, are affected by firms' financial constraints. Thus, liquidity access is an important precondition for firm investment and growth (Audretsch & Elston, 2002;Beck, Demirgüç-Kunt, & Maksimovic, 2005;Carpenter & Petersen, 2002;Fagiolo & Luzzi, 2006;Hutchinson & Xavier, 2006;Oliveira & Fortunato, 2006). However, liquidity access has generally been regarded as a common challenge for small and young businesses (Evans & Jovanovic, 1989).…”