Factors affecting the financial constraints of firms: Focus on Firm Size and Country Development

The main purpose of this paper is to analyze different factors which have an impact on the level of financial constraints that companies face. The main factors that are discussed in this paper are the size of firms and the level of country development, measured by institutional development, development of financial markets and economic development. Whited-Wu index is used to calculate the level of financial constraints for firms and the data from financial statements of companies are downloaded from DataStream. The sample consists of almost 3800 firms from 31 countries around the world. Most of our findings are in line with previous research. The size of firms, development of financial markets and economic development all have a significant effect on reducing financial obstacles for companies. The only surprising result is that the level of institutional development of countries does not have a significant effect on the level of financial constraints, which is in contrast to previous research and our expectation