The role of financial constraints in the services sector: how different is it from manufacturing?

  • Filipe Silva Imprensa da Universidade de Coimbra
  • Carlos Carreira FEUC-GEMF


Although the services sector has emerged as a major contributor to gross domestic product and employment in developed economies, very little attention has been paid to financial constraints faced by services firms. This paper represents a first attempt to model financial constraints in the services sector. In particular, we question the commonly accepted inverse relationship between firm size/age and financial constraints. To conduct our empirical tests, we estimate the Cash-Cash Flow Sensitivity using a large unbalanced panel of Portuguese firms. We also combine the recently developed Hovakimian-Hovakimian index of firm’s financial constraints with the sensitivity of cash stocks to cash-flow approach. Our results suggest that there are clear differences in financial constraints across the two sectors. First, firms operating in the services sector suffer from more severe financial constraints than those in manufacturing. Second, the relationship between size and financial constraints appears to be inverse in the case of the manufacturing sector, but not in services, for which we have U-shaped evidence. Finally, for the services sector we find some evidence suggesting an inverse relationship between age and financial constraints, while in manufacturing this relationship seems to be U-shaped.


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SILVA, Filipe; CARREIRA, Carlos. The role of financial constraints in the services sector: how different is it from manufacturing?. Notas Económicas, [S.l.], n. 43, p. 21-41, jun. 2016. ISSN 2183-203X. Disponível em: <>. Acesso em: 25 maio 2017.


Services sector; financial constraints; cash-cash flow sensitivity; firm-level studies