Abstract
The paper proposes a new multidimensional instrument for measuring a firm’s latent financial constraints and tests it in explaining their heterogeneous impact on different firm exit routes. Applying the proposed measure to Slovenian manufacturing and service firms in the 2006–2012 period suggests three dimensions of firms’ financial constraints, i.e. liquidity, operational efficiency and profitability. Whereas the liquidity dimension is important for court-driven and law-based exits, the efficiency dimension is critical for firms’ voluntary liquidation, while profitability is for the relative likelihood of being merged or acquired. These effects of financial constraints on firm exit processes tend to be intensified during the crisis period. The results also confirm that SMEs differ systematically from larger firms in terms of the sensitivity of the exit decision to financial constraints for all but merger and acquisition (M&A) exit routes.
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Acknowledgements
The authors are grateful to participants of the research seminar at the Faculty of the Economics, University of Ljubljana in June 2015 for their useful comments. We also benefited greatly from invaluable advice on legal aspects addressed in the manuscript from B. Korže and J. Cepec and from E. Santarelli’s suggestions on an earlier draft of the paper. Finally, we would like to thank three anonymous referees for their helpful comments and suggestions that contributed to the clearness of the manuscript and improved our analysis. The usual disclaimer applies.
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Ponikvar, N., Zajc Kejžar, K. & Peljhan, D. The role of financial constraints for alternative firm exit modes. Small Bus Econ 51, 85–103 (2018). https://doi.org/10.1007/s11187-017-9918-y
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DOI: https://doi.org/10.1007/s11187-017-9918-y
Keywords
- Firm exit
- Financial constraints
- Bankruptcy
- Liquidation
- Mergers and acquisitions (M&A)
- Competing risk model