Int. J. of Entrepreneurship and Innovation Management   »   2011 Vol.14, No.2/3



Title: Financing constraints and small firm investment behaviour


Author: Besnik A. Krasniqi, Isa Mustafa


Faculty of Economics, University of Prishtina; Business Support Centre Kosovo 10000, Prishtina, 20 Mother Theresa, Republic of Kosovo.
Faculty of Economics, University of Prishtina; Riinvest Institute for Development Research 10000, Prishtina, Agim Ramadani Pa numer, Republic of Kosovo


Abstract: The aim of the paper is to investigate the impact of financial constraints on investment behaviour of firms in Kosovo. This article uses data from the 2005 survey of small and medium-sized enterprises (SMEs) conducted by Riinvest Institute in order to test the investment-cash flow sensitivity hypothesis. For this purpose we use two regression techniques. First, we use ordinary least square (OLS) regression to estimate an investment equation model in order to test sensitivity of investment to cash flow. Then, we estimate a switching regression model as a robustness check in order to control for possible methodological biases of other studies. Econometric results do not support investment-cash flow sensitivity hypothesis after controlling for different sub samples of firms (i.e., firms that received a credit, firms that did not ask for credit and firms that were refused by banks) and methods.


Keywords: investment behaviour; OLS; ordinary least squares; linear regression; switching regression; financial barriers; business growth; small and medium-sized enterprises; SMEs; financing constraints; small firms; Kosovo; Riinvest Institute; surveys; investment sensitivity; cash flow sensitivity; equation models; robustness; methodological biases; econometric results; credit; banks; transition economies; entrepreneurship; innovation management; entrepreneurial finance.


DOI: 10.1504/IJEIM.2011.041729


Int. J. of Entrepreneurship and Innovation Management, 2011 Vol.14, No.2/3, pp.151 - 175


Available online: 02 Aug 2011



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