Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data

Our study investigates the real consequences of variations in the first and second moments of working capital requirement (WCR) in the presence of financial frictions. We introduce a theoretical link from imperfect information about WCR to firms’ performance. Firms choose non-prepaid factors of prod...

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Main Authors:	Mahmoudzadeh, Amineh, Nili, Masoud, Nili, Farhad
Format:	Journal Article
Published:	Elsevier 2018
Subjects:	WORKING CAPITAL FINANCIAL FRICTION CAPACITY UTILIZATION MISALLOCATION TFP FINANCIAL RISK SHOCKS UNCERTAINTY
Online Access:	http://hdl.handle.net/10986/29171

id	okr-10986-29171
recordtype	oai_dc
spelling	okr-10986-291712021-05-26T09:05:19Z Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data Mahmoudzadeh, Amineh Nili, Masoud Nili, Farhad WORKING CAPITAL FINANCIAL FRICTION CAPACITY UTILIZATION MISALLOCATION TFP FINANCIAL RISK SHOCKS UNCERTAINTY Our study investigates the real consequences of variations in the first and second moments of working capital requirement (WCR) in the presence of financial frictions. We introduce a theoretical link from imperfect information about WCR to firms’ performance. Firms choose non-prepaid factors of production with uncertainty about required prepayments, where their access to credit is constrained by collateral. After realization, firms with higher WCR may face financial constraints. This uncertainty influences their demand for inputs, albeit risk-neutrality. Unable to employ the projected level of prepaid input, constrained firms encounter capacity underutilization, leading to misallocation of factors. Aggregate productivity and output, will thus be deteriorated during credit contraction due to higher inefficiency. Empirical assessment of our findings, using the “Annual Survey of Iranian Manufacturing Enterprises,” shows that higher requirement for working capital tightens firms’ hired prepaid inputs, production, and capacity utilization. Furthermore, firms with more uncertain working capital will choose a lower level of production. These results are especially scaled up, when firms face financial constraints. 2018-01-18T17:05:26Z 2018-01-18T17:05:26Z 2017-07-21 Journal Article The Quarterly Review of Economics and Finance 1062-9769 http://hdl.handle.net/10986/29171 CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Elsevier Publications & Research :: Journal Article Publications & Research Middle East and North Africa Iran, Islamic Republic of
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
topic	WORKING CAPITAL FINANCIAL FRICTION CAPACITY UTILIZATION MISALLOCATION TFP FINANCIAL RISK SHOCKS UNCERTAINTY
spellingShingle	WORKING CAPITAL FINANCIAL FRICTION CAPACITY UTILIZATION MISALLOCATION TFP FINANCIAL RISK SHOCKS UNCERTAINTY Mahmoudzadeh, Amineh Nili, Masoud Nili, Farhad Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data
geographic_facet	Middle East and North Africa Iran, Islamic Republic of
description	Our study investigates the real consequences of variations in the first and second moments of working capital requirement (WCR) in the presence of financial frictions. We introduce a theoretical link from imperfect information about WCR to firms’ performance. Firms choose non-prepaid factors of production with uncertainty about required prepayments, where their access to credit is constrained by collateral. After realization, firms with higher WCR may face financial constraints. This uncertainty influences their demand for inputs, albeit risk-neutrality. Unable to employ the projected level of prepaid input, constrained firms encounter capacity underutilization, leading to misallocation of factors. Aggregate productivity and output, will thus be deteriorated during credit contraction due to higher inefficiency. Empirical assessment of our findings, using the “Annual Survey of Iranian Manufacturing Enterprises,” shows that higher requirement for working capital tightens firms’ hired prepaid inputs, production, and capacity utilization. Furthermore, firms with more uncertain working capital will choose a lower level of production. These results are especially scaled up, when firms face financial constraints.
format	Journal Article
author	Mahmoudzadeh, Amineh Nili, Masoud Nili, Farhad
author_facet	Mahmoudzadeh, Amineh Nili, Masoud Nili, Farhad
author_sort	Mahmoudzadeh, Amineh
title	Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data
title_short	Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data
title_full	Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data
title_fullStr	Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data
title_full_unstemmed	Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data
title_sort	real effects of working capital shocks : theory and evidence from micro data
publisher	Elsevier
publishDate	2018
url	http://hdl.handle.net/10986/29171
_version_	1764468682767990784

Real Effects of Working Capital Shocks : Theory and Evidence from Micro Data

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