Liquidity and the Firm Size-Growth Nexus in Barbados

Provided that there is some convergence in the size of firms over time, one should expect smaller firms to grow faster than their larger counterparts. However, if financial constraints influence the firm’s investment decision this could have implications for the potential prospects of the firm. This study examines whether liquidity constraints have influenced firm size and growth dynamics in Barbados. Panel-Gibrat regressions are augmented with proxies for liquidity constraints of the 17 publicly listed firms on the Barbados Stock Exchange (BSE) over the period 1997 to 2007. If liquidity constraints are found to be important, it could suggest that more emphasis should be placed on providing short term support.