NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Karthik Krishnan, Debarshi Nandy, Manju Puri

NBER Working Paper No. 20149
Issued in May 2014
NBER Program(s):   CF   PR

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.

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Document Object Identifier (DOI): 10.3386/w20149

 
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