Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment
55 Pages Posted: 26 May 2014 Last revised: 30 Sep 2014
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.
Suggested Citation: Suggested Citation