Empirical investigations show that the ability of firms to raise
external financial resources
represents a key factor influencing several dimensions of their
dynamics. Motivated by these
findings, we present a simple framework which allows for a unified
analysis of the effects of
financing constraints (FC) on the empirical distributions of firm size
and growth rate, over different
time horizons. As a measure of FC we take an official credit rating
index, which directly
measures the cost and scope of corporate access to capital markets.
Our findings suggest that FC play a relevant role both in the short and
in long run. Over the
short run, they operate through asymmetric “threshold effects”, either
preventing financially constrained
firms from exploiting attractive growth opportunities, or further
deteriorating the growth
prospects of already slow growing firms. These effects get translated
into different patterns of
growth and result, over the longer run, into size distributions which
evolve differently for firms
affected by different degrees of financial constraints. In particular,
we show that, in the presence
of FC, the relation between firm size and the variability of its growth
rates is moderated, while
the natural auto-regressive structure of growth process get enhanced.
The main conclusions of the paper survive the inclusion in the model of
other relevant determinants
of the size-growth dynamics, like firm age, and the availability of
internal financial
resources.