Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment

54 Pages Posted: 24 Nov 2013 Last revised: 15 Dec 2015

See all articles by Karthik Krishnan

Karthik Krishnan

Northeastern University

Debarshi K. Nandy

Brandeis University - International Business School

Manju Puri

Duke University - Fuqua School of Business; NBER; FDIC

Multiple version iconThere are 2 versions of this paper

Date Written: May 2014

Abstract

We analyze how increased access to financing affects firm total factor productivity (TFP) by exploiting a natural experiment following interstate banking deregulations which increased access to bank financing. We find that firms' TFP increases after their states implement these deregulations. Using a regression discontinuity approach based on Small Business Administration's funding eligibility criteria, we show that TFP increases following the deregulations are significantly greater for financially constrained firms. Our results suggest that greater access to financing allows financially constrained firms to invest in productive projects that may otherwise not be taken up.

Keywords: Productivity, Small firm, Bank financing

JEL Classification: G30, G21, D24

Suggested Citation

Krishnan, Karthik and Nandy, Debarshi K. and Puri, Manju, Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment (May 2014). Duke I&E Research Paper No. 15-11. Available at SSRN: https://ssrn.com/abstract=2358819 or http://dx.doi.org/10.2139/ssrn.2358819

Karthik Krishnan

Northeastern University ( email )

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HOME PAGE: http://www.northeastern.edu/kkrishnan

Debarshi K. Nandy

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
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Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

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Durham, NC 27708-0120
United States
919-660-7657 (Phone)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
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FDIC ( email )

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Washington, DC 20429
United States

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