Financing patterns, debt maturity and growth : evidence from East Asia and the GCC countries

The primary goal of this paper is to quantify the impact of financing constraints on corporate growth. For this, we use a sample of 1588 firms from the GCC and East Asia during the period 1999-2007. Specifically, we examine the relationships between growth and (1) the availability of internal finance, and (2) the debt maturity of external financing using an accelerator investment model extended to account for the extent to which companies use internal finance, long term debt and short term debt to finance their acquisition of long term assets. A company is constrained not only because it cannot access credit but also if it cannot access long term finance. This paper therefore includes the maturity of the debt as an explicit variable that impacts corporate long term investment. Our evidence supports earlier findings that because of asymmetric information and other market imperfections, small companies face more financing constraints than large companies, and have difficulties accessing long term finance. Our results also provide evidence that corporations in East Asia face financing constraints while those in the GCC seem to have easy access to long and short term finance. -- investment ; asymmetric information ; internal finance ; external finance