The Sources of Financing Constraints

Which financial frictions drive firms’ financing constraints? We structurally estimate dynamic firm financing models embedding many financial frictions, on panels of public firms and private firms. We focus on limited enforcement, moral hazard, and trade-off models and assess which models rationaliz...

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Bibliographic Details
Published in:Journal of financial economics 2021-02, Vol.139 (2), p.478-501
Main Authors: Nikolov, Boris, Schmid, Lukas, Steri, Roberto
Format: Article
Language:English
Subjects:
Business schools
Closely held corporations
Companies
Corporate governance
Dynamic contracting
Economic policy
Enforcement
Financial frictions
Financial markets
Financing
Limited enforcement
Mathematical models
Moral hazard
Research institutes
Seminars
Trade-off
Valuation
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Summary:Which financial frictions drive firms’ financing constraints? We structurally estimate dynamic firm financing models embedding many financial frictions, on panels of public firms and private firms. We focus on limited enforcement, moral hazard, and trade-off models and assess which models rationalize best observed corporate policies across various samples. Our tests, based on empirical policy function benchmarks, favor trade-off models for larger public firms, limited commitment models for smaller public firms, and moral hazard models for Private firms. Our estimates suggest significant financing constraints due to agency frictions and highlight the importance of identifying their sources for firm valuation.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2020.07.018