Service industries, growth dynamics and financial constraints

ABSTRACT

This work represents a first attempt to study the effects of financial constraints on firm growth within the business services as it can be argued that firms are different not only in terms of size but also in the way they operate in a specific industry. Thus, firms can be either characterized by the use of intensive professional knowledge or, alternatively, by the use of a workforce with no specific professional skills. For the business services included, the results reveal the relative importance of internal sources of financing with respect to the external ones. The liquidity constraints mainly affect the growth of industries requiring qualified labor pool, such as computer programming and information service activities, as well as the professional and scientific ones. In these sectors, foremost operate small firms with a superior innovation capacity; therefore, they are considered risky and face difficulties in raising debt capital on favorable terms.

KEYWORDS:

• Firm growth
• firm size
• liquidity constraints
• panel data
• business services

JEL CLASSIFICATION:

• G31
• G32
• L11
• L84
• L86

Disclosure statement

No potential conflict of interest was reported by the author.

ORCID

Cristiana Donati http://orcid.org/0000-0003-2968-4242

Notes

1. In our analysis, we do not consider the effect of age of firms, because our dataset does not contain this information. However, we do not think that this represents a real loss of the power of explanation of model (3); as outlined by Oliveira and Fortunato (2008), the high correlation between size and age may be explained, as firm size can be used as a proxy for the age of firms (because when firms start up, they are usually small).

2. The share of SME loans over total business in Italy decreased in the period 2007–2011 from 18.8% to 18.3% (in France it remained around 20%, in Spain it decreased from 40% to 33%, in Sweden it varied around 90% and in Norway it was around 40%).

3. The International Standard Industrial Classification of All Economic Activities (ISIC) of the United Nation is the international reference classification of productive activities. Its main purpose is to provide a set of activity categories that can be utilized for the collection and reporting of statistics according to such activities. This fourth revision is the outcome of a review process that spanned several years and involved contributions from many classifications experts and users around the world. Moreover, the relevance of the Classification has been enhanced with the introduction of new high-level categories to better reflect current economic phenomena. A new section entitled ‘Information and communication’ (see part three, sect. J) is one such innovation.

4. We thank the Italian Institute of Statistics Laboratory for the analysis of elementary data, it is what is known as Research Data Centre. In other words, a ‘secure’ site accessible by researchers and academics enabling them to conduct their own statistical analyses on microdata from the Institute’s surveys in compliance with legislation concerning the confidentiality of personal data. The panel is a representative sample of SME Italian firms.