Resumo

In imperfect markets, transaction costs, agency problems, and information asymmetry among agents can cause distortions in the credit market. These distortions unleash what Fazzari et al. (1988) called financial constraints. Several studies have been conducted to analyze whether specific financing sources can soften companies' financial constraints. Despite the importance of these studies, a new approach, still little explored in the financial restrictions literature, has emerged: the analysis of the debt structure concentration/diversification effects.

The relationship between debt structure concentration/diversification and financial constraints is still an open question in the literature. We aim to analyze whether a greater or a lesser debt concentration is related to reducing financial constraints.

We find in the literature arguments that favor both a positive and negative effect of debt concentration on firms' financial constraints. On the one hand, the greater debt concentration could reduce the financial constraint by increasing the incentive to monitor and reduce information asymmetry with creditors (Platikanova & Soonawalla, 2019; Lou & Otto, 2020). On the other hand, a lower debt concentration (i.e. greater diversification) could reduce the financial constraint due to the firm's increased bargaining power among the lenders (Jadiyappa, Hickman, Jyothi, Vunyale & Sireesha, 2020).

The study is based on a sample of 500 Brazilian firms (337 unlisted and 163 listed) in the 10-year period from 2010 to 2019, analyzed according to the investment-cash flow sensitivity model

The results are favorable to a more concentrated debt structure. In other words, firms with a greater concentration of debts tend to have less investment-cash flow sensitivity. In general, the results are robust to: i) variation of the debt concentration proxy and the independent variable; ii) the control of fixed effects in different dimensions; and iii) use of estimator for endogeneity treatment (2SLS and GMM-Diff).

The financial restriction is very harmful to companies, limiting their capacity for innovation, growth, performance and compromising their survival. For this reason, reducing financial constraints tends to be an essential task for companies' survival. Our study offers evidence that the concentration of debt in a few sources can be a strategy to reduce the financial constraints of companies.

Fazzari, S., Hubbard, R. & Petersen, B., (1988). Financing Constraints and Corporate Investments. Brookings Papers on Economic Activity, 141–206. Jadiyappa, N., Hickman, E., Jyothi, P., Vunyale, N., & Sireesha, B. (2020). Does debt diversification impact firm value? Evidence from India. Int. Rev. of Economics & Finance, 67, 362–377 Lou, Y., & Otto, C.A. (2020). Debt Heterogeneity and Covenants. Manag. Sci. 66, 70–92. Platikanova, P., & Soonawalla, K. (2019). Who monitors opaque borrowers? Debt specialisation, institutional ownership, and information opacity. Accounting & Finance. 60, 1867-1904