Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment
54 Pages Posted: 24 Nov 2013 Last revised: 15 Dec 2015
Date Written: May 2014
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: Suggested Citation