The Epidemiology of Financial Constraints

55 Pages Posted: 1 Sep 2021 Last revised: 2 Feb 2022

See all articles by William Grieser

William Grieser

Texas Christian University ; Texas Christian University - M.J. Neeley School of Business

Ioannis Spyridopoulos

American University, Kogod School of Business

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Date Written: January 31, 2022

Abstract

We use network regressions to quantify the spillover effects of financial constraints on investment in production networks. We estimate that these spillovers permeate the supply chain and induce a network multiplier that roughly doubles the forgone investment initially imposed by financial constraints. These effects propagate primarily upstream, and they strongly influence supply chain network formation. To facilitate identification, we exploit a Network Regression Discontinuity Design to quantify the spillover effects of loan covenant violations for supply chain partners’ investments. Overall, we show that ignoring spillovers may considerably understate the consequences of financial constraints on aggregate investment behavior.

Keywords: Financial Constraints, Propagation, Supply Chain Networks, Corporate Investment, Network Regression, SUTVA, Regression Discontinuity, Spatial Econometrics, Network Formation

JEL Classification: C21, D22, D85, E23, G31, L14, L21, L23, L25

Suggested Citation

Grieser, William and Spyridopoulos, Ioannis and Zekhnini, Morad, The Epidemiology of Financial Constraints (January 31, 2022). Available at SSRN: https://ssrn.com/abstract=3904480 or http://dx.doi.org/10.2139/ssrn.3904480

William Grieser

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Ioannis Spyridopoulos (Contact Author)

American University, Kogod School of Business ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

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