The Missing Link between Financial Constraints and Productivity

48 Pages Posted: 23 Oct 2008

Multiple version iconThere are 2 versions of this paper

Date Written: June 2008

Abstract

This paper provides new evidence on the link between finance and firm-level productivity focusing on the case of Estonia. We contribute to the literature in two important respects: (1) we look explicitly at the role of financial constraints; and (2) we develop a methodology that corrects for the misspecification problems of previous studies. Our results indicate that young and highly indebted firms tend to be more financially constrained. Overall, a large number of firms shows some degree of financial constraints, with firms in the primary sector being the most constrained. More importantly, we find that financial constraints do not lower productivity for most sectors with the exception of R&D, where the dampening effect of financial constraints on productivity is remarkably large. These results are robust to a variety of sensitivity tests.

Keywords: financing constraints, productivity, SMEs

JEL Classification: D24, G32, O16, P27

Suggested Citation

Moreno-Badia, Marialuz and Miranda, Veerle, The Missing Link between Financial Constraints and Productivity (June 2008). Available at SSRN: https://ssrn.com/abstract=1262165 or http://dx.doi.org/10.2139/ssrn.1262165

Marialuz Moreno-Badia (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Veerle Miranda

OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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