Small Business Economics

, Volume 42, Issue 1, pp 99–116 | Cite as

Financial constraints and firm dynamics



This study analyzes the effect of financial constraints (FCs) on firm dynamics. We measure FCs with an official credit rating, which captures availability and cost of external resources. We find that FCs undermine average firm growth, induce anti-correlation in growth patterns and reduce the dependence of growth volatility on size. FCs are also associated with higher volatility and asymmetries in growth shock distributions, preventing young fast-growing firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow-growing firms, particularly if old. The sub-diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution.


Financial constraints Firm size distribution Firm growth Credit ratings Asymmetric exponential power distribution 

JEL Classifications

L11 C14 D20 G30 L26 



The research leading to this work has received funding from the European Community’s Seventh Framework Programme (FP7/2007–2013) under Socio-economic Sciences and Humanities, grant agreement no. 217466. We also acknowledge financial support from the Institute for New Economic Thinking, INET inaugural grant no. 220 and the Italian Ministry of University and Research as a part of the PRIN 2009 program (grant protocol no. 2009H8WPX5). The authors wish to thank Alex Coad, Andrea Generale, Alessandra Guariglia, Luigi Guiso, Werner Holzl, Alan Hughes, Mariana Mazzucato, Franco Peracchi, Fabiano Schivardi, Sidney Winter and an anonymous referee for insightful comments to earlier drafts. We are also grateful to participants at the 2010 meeting of the European Association for Research in Industrial Economics (Istanbul, Turkey), those at the 2010 meeting of the European Economic Association (Glasgow, UK), those at the 2010 meeting of the International Schumpeter Society (Along, Denmark), and those at the DIME Workshop “Financial Constraints, Firm and Aggregate Dynamics” (Sophia-Antipolis, France). Useful discussions with participants to seminars at Scuola Superiore Sant’Anna, Pisa, Italy, at the University of Paris 1, Pantheon-Sorbonne, France, at the Einaudi Institute for Economics and Finance, Rome, Italy, at the European Central Bank, Frankfurt, Germany, and at the WIFO-Austrian Institute of Economic Research, Vienna, Austria, are also acknowledged. The usual disclaimers apply.


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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  • Giulio Bottazzi
    • 1
  • Angelo Secchi
    • 2
  • Federico Tamagni
    • 1
  1. 1.Institute of EconomicsScuola Superiore Sant’AnnaPisaItaly
  2. 2.Centre d’Economie de la Sorbonne (CES)Paris School of Economics–Université Paris 1 Panthéon–SorbonneParis Cedex 13France

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