I'm looking for empirical evidence (optimally from natural experiments, as described below) of the impact of working capital constraints onto firm output, and the differentials of firm size.
I suppose that generally, stricter working capital constraints are bad for output, and typically these constraints are stronger for smaller firms (measured in output) and younger firms. However, I couldn't manage to find (a) paper(s) to establish that fact yet.
Where by working capital constraint I mean something along the lines of Kiyotaki&Moore (1997)
$$L, K: f(wL, rK) \leq \psi(F(K,L))$$
, for example, for some constant $\psi_0$,
$$wL + rK \leq \psi_0 \cdot F(K,L)$$
where $F(\cdot)$ is the production function, and $f$ and $\psi$ can be whatever.
I have, in other environments, seen that some people take bank liquidity to approximate $\psi$ and argue that for example the last recession was a natural experiment on a change of $\psi$.
So, one type of useful regression table would be (on the firm level)
- dependent variable: output
- independent variables:
- Increase of financial constraint (here, decrease of $\psi_0$)
- Dummy for firm size (or different size bins)
- And/Or: Dummy for firm age (or different age bins)
- additional controls
One example would be Chodorow-Reich (2014, QJE). The two downsides with that paper are that
- He uses employment, not output as dependent variable (but that's tolerable)
- He does not actually list the coefficients on the dummies for size. He just includes them as controls.