Financial Constraints, Working Capital and the Dynamic Behavior of the Firm

Chan, Rosanna

World Bank, Washington, DC

关键词: ACCELERATOR;    ACCESS TO CREDIT;    ACCESS TO EXTERNAL FINANCE;    ACCESS TO FINANCE;    ACCESS TO FINANCING;   

DOI  :  10.1596/1813-9450-6797
RP-ID  :  WPS6797

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Financial constraints are widespread indeveloping countries, where even short-term credit islimited. Finance held by firms as working capital is asubstantial proportion of sales revenue, yet the role ofworking capital is largely neglected by existing models offinancial constraints. This paper presents a dynamic modelof the firm that incorporates working capital by introducinga delay between factor payments and the receipt of revenue.In contrast with previous models, the working capital modelpredicts that firms under binding constraints willsubstitute between labor and capital in response to demandshocks, causing investment to be countercyclical. For firmsnear the margin of being constrained, constraints bind whenpositive production opportunities arise. Output growth istherefore constrained in response to positive shocks but notto negative shocks. Simulations suggest that models withoutworking capital may understate the predicted effects offinancial constraints on production efficiency, firm profitand growth over time. The predictions are tested with theBangladesh Panel Survey data for manufacturing firms.Consistent with the theory, there is evidence thatconstraints bind when output price increases, thatinvestment by constrained firms is countercyclical, and thatoutput response to positive shocks is dampened for firmsthat are sometimes constrained. The results also areimportant for policy. In order to maximize growth, effortsto relieve credit constraints should be focused on periodswhen demand shocks are high.