Introducción a la innovación en las empresas de servicios

2.1 Financial Crisis and Firm’s Leverage

It is generally argued that private firms are characterized by high information asymmetry and control considerations (Brav, 2009, Michaelas et al., 1999 a). Therefore, moral hazard and adverse selection problems may be high in these firms (Michaelas et al., 1999 a). These problems may further worsen during an economic downturn (Michaelas et al., 1999 b) which suggests that the financing mix and investment in private firms may be vulnerable to the credit supply shocks. In this regard, Gertler and Gilchrist (1993) highlight that the financing mix of firms is sensitive to the supply of bank loans. By classifying their sample firms into small and large firms, they find that the impact of tight monetary policy is higher for the financing mix of small manufacturing firms as compared to large manufacturing firms. Similarly, other studies such as; Gertler and Gilchrist (1994), Oliner and Rudebusch (1995), and Mateut et al., (2006) have also examined this issue and have reported similar results. This may be due to the vulnerability of small firms to market friction. It is also argued that when a financial shock hits the banking system; it has a greater effect on the lending of credit to small businesses (Berger and Udell, 2002, Hancock and Wilcox, 1998). This is because small firms have few close substitutes for a bank loan. Therefore, a reduction in loans to small businesses has a greater effect on its activities compared to large firms (Hancock and Wilcox, 1998). Also, Bruno (2009) shows that when a financial shock hits the banking system it has a large affect on the financing and investment of small businesses.

There is also evidence which suggests that the leverage ratio of firms which are dependent on bank loans is sensitive to variations in the supply of bank loan (Chava and Purnanandam, 2011). Leary (2009) also shows that the capital structure of small bank dependent firms is more sensitive to the availability of bank loans than large firms, which have access to capital markets. Similarly, Lim (2003) examines the sources of finance before and after the financial crisis in Korea and found contrasting results. The findings suggest that the proportion of loans from financial institutions decreased in the financial structure of large firms after the crisis while small, profitable firms had better access to credit from financial institutions after the crisis. However, in contrast to these arguments, findings of some other studies suggest that a credit supply shock has little effect on the financing mix of firms. Lemmon and Roberts (2010) for example, find negligible effect of credit contractions on the leverage of firms. Similarly, Lin and Paravisini (2010) did not find any significant relationship between firms‘ leverage and credit shortage in their sample of firms.

2.2 Financial Crisis and Alternative Sources of Finance

It is generally argued that when the supply of external credit squeezes, then firms find substitutes for alternative sources of finance such as, internal finance, equity and trade credit (Petersen and Rajan, 1997, Leary, 2009, Lin and Paravisini, 2010). However, as mentioned earlier, private firms face a greater information problem, which may worsen further during an economic downturn (Michaelas et al., 1999 b). As a result, these firms might prefer to use a funding source that is less sensitive to the information problem. In this regard, internal finance is generally regarded as the cheapest source of finance. In addition, it is less sensitive to the information problem (Myers, 1984, Myers and Majlusf, 1984). The pecking order theory also suggests that firms prefer internal finance over external credit. Similarly, Leary (2009) finds that firms with no access to capital markets used more internal finance and equity during the credit crunch.

However, Baum et al., (2006), highlight that when macroeconomic or idiosyncratic uncertainty increases, firms tend to hold more liquid assets. As private firms are more sensitive to both of these uncertainties they may tend to hold more cash reserves. Faulkender (2002) argues that small firms face high information asymmetry problems and, as a result, they may not be able to raise cash in the future, they therefore hold more cash. Similarly, Lin and Paravisini (2010) report that firms hold more cash following credit contractions, which is consistent with the precautionary saving motive. In addition, firms might substitute to equity finance to hedge themselves from the negative effect of the credit contractions. Leary (2009) for example, shows that small firms use greater equity finance during tight monetary conditions. In a related context, the findings of Lin and Paravisini (2010) reveal that firms increase the use of equity financing following negative shocks to bank credit. There is, however, limited evidence of substitution towards alternative sources of finance following negative shocks to the supply of credit (Lemmon and Roberts, 2010).

Trade credit is another alternative source of short term finance for private firms. Therefore, in response to a credit drought, firms might substitute to trade credit to lessen the effect of credit contractions. In this regard, Petersen and Rajan (1997), for example, argue that small firms, which do not have access to capital markets, increase the use of trade credit when faced by limited, or no, availability of credit from financial institutions. Their results support the role of trade credit as a potential substitute for bank credit. Other studies have also confirmed the above findings (see for example, Atanasova and Wilson, 2003; 2004; Nilsen 2002; Mateut et al., 2006).

However, the findings of some other studies do not support the notion that small firms increase the use of trade credit as a substitute for bank finance during tight monetary conditions (see for instance, Gertler and Gilchrist, 1993; Bernanke and Gertler, 1995). This might be due to the unfavourable terms of credit offered to firms as a substitute to a bank loan. Similarly, Oliner and Rudebusch (1996) find ‗no evidence that small firms increase their use of trade credit during period of tight money...‘. In this regard, Taketa and Udell (2007) argue that for SMEs trade credit and bank lending complement each other rather than act as substitutes. Also, Love and Zaidi (2010) find that, financial crisis reduced the availability of both bank credit and trade credit. To summarize the above discussion, it seems that there is a lack of consensus on the role of alternative sources of finance during the crisis period, which highlights the need for more research in this area.