Skip to main content
School of Economics and Finance

No. 948: Financial Constraints and Firm Size: Micro-Evidence and Aggregate Implications

Miguel H. Ferreira , QMUL and CEPR
Timo Haber , De Nederlandsche Bank
Christian Rörig , QuantCo

June 14, 2023

Download full paper

Abstract

Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firm size distribution, even in the top 1%. Incorporating a richer, empirically supported, productivity process into a standard heterogeneous firms model generates a joint distribution of size and credit constraints in line with the data. The presence of large constrained firms in the economy, together with their elevated capital share, explains about 66% of the response of output to a financial shock. We conclude by providing micro-evidence in support of the model mechanism.

J.E.L classification codes: E62, E22, E23

Keywords:Firm size, business cycle, financial accelerator

Back to top