Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1493: Financial Constraints and Cash Holdings in Private Firms: Evidence from Discontinuous Credit Ratings

Emil Bustos () and Oliver Engist
Additional contact information
Emil Bustos: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Oliver Engist: Department of Economics, Postal: Stockholm School of Economics

Abstract: We study how financing constraints affect the cash holdings of small and medium-sized enterprises. There has been little empirical work on this topic, even though these firms often face financial constraints. We contribute by using detailed data on credit ratings in Sweden as a measure of financial constraints. We then use panel regressions and a regression-discontinuity analysis to estimate the relationship between access to credit and cash holdings. Our analysis finds no causal effect of credit ratings on cash holdings.

Keywords: Financial Constraints; Cash; Private Firm; Credit Score

JEL-codes: D22; D25; G32

Language: English

9 pages, June 25, 2024

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