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Financial Constraints and Firm Size: Micro-Evidence and Aggregate Implications

Working paper 777
Working Papers
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Gepubliceerd: 22 mei 2023

Door: Miguel Ferreira Timo Haber Christian Rorig

Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firmsize distribution, even in the top 1%. Incorporating a richer, empirically supported, productivity process into a standard heterogeneous firms model generates a joint distribution of size and credit constraints in line with the data. The presence of large constrained firms in the economy, together with their elevated capital share, explains about 66% of the response of output to a financial shock. We conclude by providing microevidence in support of themodel mechanism.

Keywords: Firmsize; business cycle; financial accelerator
JEL codes E62; E22; E23

Working paper no. 777

777 - Financial Constraints and Firm Size: Micro-Evidence and Aggregate Implications

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Research highlights : 

  • Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire size distribution.
  • Incorporating a richer productivity process into a heterogeneous firms model generates a joint distribution of size and credit constraints in line with the data.
  • The presence of large, constrained firms explains around two-thirds of the response of aggregate output to a financial shock.
  • Hence, the micro-distribution of size and constraints is crucial for aggregate effects of financial shocks and size-based policies may not be the optimal policy response.

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