The impact of financial constraints on investment decisions and firm performance

: an empirical analysis from portuguese private firms

Abstract

This dissertation examines the impact of financial constraints on investment decisions and to discuss their potential implications for long-term financial performance, specifically in private firms, with a focus on Portuguese firms. Given that private firms frequently encounter more pronounced financing frictions, this study makes a significant contribution to the limited empirical literature concerning non-listed companies in bank-dependent economies. To this end, the study constructs a balanced panel dataset comprising 2 087 Portuguese private firms over the period 2014–2023. Two empirical models are employed: Investment-Cash Flow Sensitivity (ICFS) and Cash-Cash Flow Sensitivity (CCFS). The ICFS model is estimated using a dynamic panel approach, while the CCFS model is estimated through fixed effects with robust standard errors. The models assess the relationship between internal financial resources and firms' investment and liquidity behavior, enabling an indirect identification of financial constraints. Preliminary results suggest that Portuguese private firms are significantly financially constrained. In accordance with extant literature, the findings indicate a pronounced reliance on internal funds to finance investment and maintain liquidity, particularly in the absence of accessible external financing. These findings emphasise the strategic importance of internal liquidity and underscore the necessity for financial policies that enhance access to capital, thereby promoting sustained investment and long-term perfor

Date of Award	4 Jul 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Aviner Manoel (Supervisor)