Corporate Governance and Liquidity Constraints: A Dynamic Analysis

Type of Work

Article

Date

3-2010

Journal Title

Comparative Economic Studies

Journal ISSN

0888-7233

Journal Volume

52

Journal Issue

1

First Page

82

Last Page

103

DOI

10.1057/ces.2009.10

Abstract

Rich panel data for a large and representative sample of Estonian firms are used to estimate the sensitivity of access to capital to differing ownership structures. This is done through explicitly modelling firm investment behaviour in a dynamic setting in the presence of adjustment costs, liquidity constraints, and imperfect competition. We estimate Euler equations derived in the presence of symmetric and quadratic adjustment costs and both debt and equity constraints. Generalized Method of Moments (GMM) estimates confirm the importance of access to capital in determining investment rates and suggest that firms owned by insiders, especially non-managerial employees, are more prone to be liquidity constrained than others.

JEL classification: C33, D21, D92, E22, G32, G34, J54, P34

Hamilton Areas of Study

Economics

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