Finance and Productivity Growth: Firm-Level Evidence

53 Pages Posted: 31 May 2017 Last revised: 25 Apr 2022

See all articles by Oliver Levine

Oliver Levine

University of Wisconsin - Madison - Department of Finance

Missaka Warusawitharana

Board of Governors of the Federal Reserve System

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Date Written: February, 2014

Abstract

Using data on a broad set of European firms, we find a strong positive relationship between the use of external financing and future productivity (TFP) growth within firms. This relationship is robust to various measures of financing and productivity, and strengthens as financing costs increase. We provide evidence against a reverse-causality explanation by showing that this relationship arises from the component of TFP that is outside the information set of the firm. These findings indicate that financial development supports productivity growth within firms, and helps explain why economic activity remains persistently depressed following financial crisis.

Keywords: Finance-growth nexus, financial crisis, total factor productivity

Suggested Citation

Levine, Oliver and Warusawitharana, Missaka, Finance and Productivity Growth: Firm-Level Evidence (February, 2014). FEDS Working Paper No. 2014-17, Available at SSRN: https://ssrn.com/abstract=2976921

Oliver Levine (Contact Author)

University of Wisconsin - Madison - Department of Finance ( email )

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Missaka Warusawitharana

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
United States

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