Corporate Governance, Firm Size and Liquidity Constraints: A Dynamic Analysis

    Research output: Working paperResearch

    Abstract

    New and rich panel data for a large and representative sample of firms are used to estimate the sensitivity of access to capital to differing ownership structures. The investment behaviour of firms is examined in a dynamic setting in the presence of adjustment costs, liquidity constraints and imperfect competition. The empirical work is based on the derivation of Euler equations in the presence of symmetric and quadratic adjustment costs and both debt and equity constraints. Whereas the norm is to use ad hoc approaches to model these constraints, our alternative and more consistent leads to the inclusion of financial variables in investment equation in first differences rather than in levels. Our GMM estimates confirm the importance of financial factors in determining investment rates and suggest that firms owned by insiders, especially non-managerial employees, are more prone to be liquidity constrained than are others. Among the other groups, somewhat surprisingly, only domestic outsider owned firms display sensitivity to both measures of the availability of finance, with manager owned firms being sensitive to the availability of external finance, while state owned firms being sensitive to the availability of internal finance. Corporate Investment, Corporate Governance, Adjustment Costs, Liquidity Constraints, GMM Estimates, Transition Economies.
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherDepartment of International Economics and Management, Copenhagen Business School
    Number of pages33
    Publication statusPublished - 2007
    SeriesWorking Paper / Department of International Economics and Management, Copenhagen Business School
    Number2007-3

    Keywords

    • Corporate investment
    • Corporate governance
    • Adjustment costs
    • Liquidity constraints
    • GMM estimates
    • Transition economies

    Cite this

    Hobdari, B., Jones, D., & Mygind, N. (2007). Corporate Governance, Firm Size and Liquidity Constraints: A Dynamic Analysis. Frederiksberg: Department of International Economics and Management, Copenhagen Business School. Working Paper / Department of International Economics and Management, Copenhagen Business School, No. 2007-3
    Hobdari, Bersant ; Jones, Derek ; Mygind, Niels. / Corporate Governance, Firm Size and Liquidity Constraints : A Dynamic Analysis. Frederiksberg : Department of International Economics and Management, Copenhagen Business School, 2007. (Working Paper / Department of International Economics and Management, Copenhagen Business School; No. 2007-3).
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    abstract = "New and rich panel data for a large and representative sample of firms are used to estimate the sensitivity of access to capital to differing ownership structures. The investment behaviour of firms is examined in a dynamic setting in the presence of adjustment costs, liquidity constraints and imperfect competition. The empirical work is based on the derivation of Euler equations in the presence of symmetric and quadratic adjustment costs and both debt and equity constraints. Whereas the norm is to use ad hoc approaches to model these constraints, our alternative and more consistent leads to the inclusion of financial variables in investment equation in first differences rather than in levels. Our GMM estimates confirm the importance of financial factors in determining investment rates and suggest that firms owned by insiders, especially non-managerial employees, are more prone to be liquidity constrained than are others. Among the other groups, somewhat surprisingly, only domestic outsider owned firms display sensitivity to both measures of the availability of finance, with manager owned firms being sensitive to the availability of external finance, while state owned firms being sensitive to the availability of internal finance. Corporate Investment, Corporate Governance, Adjustment Costs, Liquidity Constraints, GMM Estimates, Transition Economies.",
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    Hobdari, B, Jones, D & Mygind, N 2007 'Corporate Governance, Firm Size and Liquidity Constraints: A Dynamic Analysis' Department of International Economics and Management, Copenhagen Business School, Frederiksberg.

    Corporate Governance, Firm Size and Liquidity Constraints : A Dynamic Analysis. / Hobdari, Bersant; Jones, Derek; Mygind, Niels.

    Frederiksberg : Department of International Economics and Management, Copenhagen Business School, 2007.

    Research output: Working paperResearch

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    Hobdari B, Jones D, Mygind N. Corporate Governance, Firm Size and Liquidity Constraints: A Dynamic Analysis. Frederiksberg: Department of International Economics and Management, Copenhagen Business School. 2007.