Working Paper: CEPR ID: DP1072
Authors: David B. Audretsch; Julie Ann Elston
Abstract: This paper examines the link between liquidity constraints and investment behaviour on the one hand, and firm size on the other for a large sample of German firms over the time period 1968-85. The results indicate that smaller firms tend to have investment functions which are more sensitive to liquidity constraints than do the larger enterprises. These results support the hypothesis that smaller firms tend to be disadvantaged relative to their larger counterparts in terms of access to finance. Such liquidity constraints are found to exist in Germany only since the mid-1970s, however. Apparently the German model of finance was able to avoid imposing financial constraints on even smaller enterprises prior to the mid-1970s. Since then, however, the evidence suggests that it has not succeeded in avoiding such liquidity constraints, particularly with respect to the finance of smaller enterprises.
Keywords: Germany; Liquidity Constraints; Investment
JEL Codes: G0; G1; G2; G3; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm size (L25) | liquidity constraints (E41) |
| liquidity constraints (E41) | investment behavior (G11) |
| firm size (L25) | investment behavior (G11) |
| historical context of financial conditions (N20) | liquidity constraints (E41) |
| financial structure of a country (G32) | investment behavior (G11) |