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

55 Pages Posted: 26 May 2014 Last revised: 30 Sep 2014

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.

Suggested Citation

Krishnan, Karthik and Nandy, Debarshi K. and Puri, Manju, Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment (May 2014). NBER Working Paper No. w20149. Available at SSRN: https://ssrn.com/abstract=2441780

Karthik Krishnan (Contact Author)

Northeastern University ( email )

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Debarshi K. Nandy

Brandeis University - International Business School ( email )

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Manju Puri

Duke University - Fuqua School of Business ( email )

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NBER

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