NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Firm Dynamics and Financial Development

Cristina Arellano, Yan Bai, Jing Zhang

NBER Working Paper No. 15193
Issued in July 2009
NBER Program(s):   EFG   IFM

This paper studies the impact of cross-country variation in financial market development on firms' financing choices and growth rates using comprehensive firm-level datasets. We document that in less financially developed economies, small firms grow faster and have lower debt to asset ratios than large firms. We then develop a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk. We parameterize the model to the firms' financial structure in the data and show that financial restrictions can account for the majority of the difference in growth rates between firms of different sizes across countries.

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Document Object Identifier (DOI): 10.3386/w15193

Published: Arellano, Cristina & Bai, Yan & Zhang, Jing, 2012. "Firm dynamics and financial development," Journal of Monetary Economics, Elsevier, vol. 59(6), pages 533-549.

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