The impact of the financial system’s structure on firms’ financial constraints

Baum, Christopher F., Schäfer, Dorothea and Talavera, Oleksandr (2011) The impact of the financial system’s structure on firms’ financial constraints. Journal of International Money and Finance, 30 (4). pp. 678-691.

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We estimate firms’ cash flow sensitivity of cash to empirically test how the financial system’s structure and level of development influence their financial constraints. For this purpose we merge Almeida et al.’s work, a path-breaking design for evaluating a firm’s financial constraints, with that of Levine, who paved the way for comparative analysis of financial systems around the world. We conjecture that a country’s financial system, both in terms of its structure and its level of development, should influence the cash flow sensitivity of cash of constrained firms but leave unconstrained firms unaffected. We test our hypothesis with a large international sample of 30,000 firm-years from 1989 to 2006. Our findings reveal that both the structure of the financial system and its level of development matter. Bank-based financial systems provide constrained firms with easier access to external financing.

Item Type: Article
Faculty \ School: Faculty of Social Sciences > School of Economics
Depositing User: Oleksandr Talavera
Date Deposited: 11 Apr 2011 14:24
Last Modified: 15 Dec 2022 01:23
DOI: 10.1016/j.jimonfin.2011.02.004

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