Firm dynamics and financial development

By C. Arellano, Yan Bai, Jing Zhang. 2012

175 citations recorded by the source corpus.

Using comprehensive firm-level datasets, this paper studies the impact of cross-country variation in financial market development on firms' financing choices and growth. In less financially developed economies, small firms grow faster and have lower leverage than large firms. As financial development improves, the growth difference between small and large firms shrinks, while the leverage difference rises. The paper then develops a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk. The model explains the observed cross-country variations in firm size, leverage and growth in response to changes in financial frictions.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/997d19914fd26a7cf7ab1af72fc84fc13a11847b

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

In Finance

Citations in the corpus

Misallocation of Capital in a Model of Endogenous Financial Intermediation and Insurance (2011, unknown): “(14)Arellano et al. (2009) find that firms in countries with more developed financial markets tend to have larger leverage ratios (close to 1.0) and that the leverage-firm size relation is generally downward sloping: small firms have relatively higher leverage ratios than large firms. In the underde”
Capital flows and the international credit channel (2017, methodology): “Arellano et al. (2012) and Gopinath et al. (2015) document a positive cross-sectional relationship between firm leverage and size using AMADEUS data for several European countries.”
Firm Financing over the Business Cycle (2018, background): “We follow Arellano et al. (2012) by assuming that bondholders obtain the depreciated assets of the company less the adjustment costs for divesting the assets that is left after paying the bankruptcy cost. If equity is positive (e > 0), it represents a distribution (payout) to the shareholder. Equity”