| Abstract: | The study reviews the literature about firm’s financial constraints, including the definition, reasons, and measures for the firm’s financial constraints, as well as the impact of the financial constraints. Financial constraints mean that the company faces financial difficulties when it has funding needs, but cannot successfully obtain funding. Past literature mentioned many factors affecting financial constraints. In this study, based on literature, the fundamental causes and extent of the influence are used to classify the impact factors, where information asymmetry is the root cause, and the factors cause different degrees of influences including the level of agency problems, short-sighted managers and investors, shareholder stability, corporate governance, overseas financing, company size, set up time, tangible assets, ownership concentration, banking relationships, family business, enterprise ownership properties (group or independent companies), as well as general economic factors, etc. Literature related to these factors can provide readers more complete understandings about how to prevent financial constraints and how to minimize the financial constraints.
The study also explores the measures of financial constraints, including foreign and domestic methods. The former includes dividend payout ratio and the sensitivity of investment-cash flow, some financial or characteristic variables, banking relationship, and comprehensive indexes, etc. The latter consists of firm properties, banking relationship, credit rating, and multiple indexes. Understanding various measures provides readers more comprehensive and multiple references in measuring financial constraints. Moreover, according to the measuring logic, readers can research and create better methods to measure financial constraints.
Financial constraints cause a lot of influences, such as investment decision, financing and dividend policy, corporate value, the impact on export decision, etc. The related literature is reviewed in detail in this study. |
