Firm dynamicsandfinancialdevelopment

Usingcomprehensivefirm-leveldatasets,thispaperstudiestheimpactofcross-country variationinfinancialmarketdevelopmentonfirms’financingchoicesandgrowth. In lessfinanciallydevelopedeconomies,smallfirmsgrowfasterandhavelower leveragethanlargefirms.Asfinancialdevelopmentimproves,thegrowthdifference betweensmallandlargefirmsshrinks,whiletheleveragedifferencerises.Thepaper then developsaquantitativemodelwherefinancialfrictionsdrivefirmgrowthanddebt financingthroughtheavailabilityofcreditanddefaultrisk.Themodelexplainsthe observedcross-countryvariationsinfirmsize,leverageandgrowthinresponseto changesinfinancialfrictions