Financial Slack and Establishment Size in Mexico: Evidence from Industrial Surveys, 2003-2008

37 Pages Posted: 17 Nov 2014

Date Written: April 10, 2013

Abstract

We study the relationship between establishments' size and the availability of finance. We test whether size growth can be traced to financial slack and firms distance from optimal size. We use the size of US establishments by industry as a benchmark of 'optimal' size. We measure an industry's financial slack as the product of the industry's 'financial dependence' and aggregate financial slack. We find evidence that changes in financial slack affect the growth rate across establishments in Mexico. Consistent with the results in Rajan and Zingales (1998), establishment size in finance-dependent industries grows relatively more than in the rest of the industries, during times of aggregate financial slack. We also find that there is a relationship between size growth and the relative size of establishments with respect to the US counterparts in the sense that establishment growth is higher in industries with relatively small establishment size, when financial slack increases.

Suggested Citation

Bazdresch, Santiago, Financial Slack and Establishment Size in Mexico: Evidence from Industrial Surveys, 2003-2008 (April 10, 2013). Available at SSRN: https://ssrn.com/abstract=2525691 or http://dx.doi.org/10.2139/ssrn.2525691

Santiago Bazdresch (Contact Author)

Banco de México

Av. 5 de Mayo No. 18
Col. Centro, Deleg. Cuauhtémoc
Ciudad de México, DF, CDMX 06059
Mexico
+525552372000 (Phone)

HOME PAGE: http://www.banxico.org.mx/

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