Short-term debt, asset tangibility and the real effects of financial constraints in the Spanish crisis

Abstract

This paper uses Spanish non financial firms’ data from 1991 to 2011 to analyze the differential contractionary effect of financial constraints at the onset of the crisis on investment and employment growth. Specially, I test whether the contraction in these variables is stronger among firms whose financing relied more heavily on short-term debt or that have a larger proportion of tangible assets among their total assets. Hence, I use a difference-in-differences approach to document the real effects of the financial constraints supposedly suffered by Spanish firms during the crisis. I find a positive and statistically significant differential effect of Asset Tangibility and a negative and statistically significant differential effect of Refinancing Needs on Investment at the outset of the crisis. However, neither Asset Tangibility nor Refinancing Needs explain a differential behavior of Employment Growth at the arrival of the crisis