FIRM SIZE MATTERS FOR FINANCIAL CONSTRAINTS: EVIDENCE FROM BRAZIL

The purpose of this work is to verify the existence of financial constraints for investment in Brazil and the specific firm size effect on it. Dynamic investment models are estimated for a panel dataset of 289 Brazilian nonfinancial firms for the time period 1995-2006. Results show that Brazilian firms face financial constraints since their investment depend on internally generated funds. Firm size has shown to be, effectively, an important determinant of it. Investment of smaller firms is more sensitive to cash flow than that of larger ones. At the firm level, our findings suggest the need for further developments on information disclosure as a way to mitigate asymmetric information problem. At the policy level, additional advance in the institutional environment might also be important for minimizing financial constraints for Brazilian firms.