Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry

The article investigates whether liquidity constraints affect firm size and growth dynamics of Italian manufacturing firms. Panel-data regressions and distribution analyses show that (i) liquidity constraints engender a negative effect on growth once one controls for size; (ii) smaller firms grow more after controlling for liquidity constraints; and (iii) the stronger liquidity constraints, the more size negatively affects firm growth. Furthermore, we find that financial constraints help in better explaining the relationship between firm growth and age, conditional on size. Finally, our data indicate that size distributions depart from log-normality, and growth rates are well approximated by Laplace densities.