Frontiers in Finance and Economics is a UGC APPROVED International Journal of Research

Frontiers of Financially Constrained and Unconstrained Firms: a New Development in Finance

Monica H. Maestro,  Alberto de Miguel,  Julio Pindado
This paper presents a new development in Finance that could be used to know whether a firm suffers from financial constrains. Our method consists of, first, developing a financial constraints model that objectively separates over 50% of all firms. The results of this first stage are then used to classify the remaining firms by using logit analysis. Our methodology yields classification results in agreement with the financial development of the economic areas studied (the US, Japan and the EU). Furthermore, the suggested methodology substantially improves the classification of firms, since whatever the correct classification percentage yielded by logit analysis, previous application of our Financial Constraints Model allows the researcher to obtain a good final classification.
Keywords: Firms’ investment, Financial constraints, Logit analysis,  JEL classification: G31

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