Working Paper: NBER ID: w20149
Authors: Karthik Krishnan; Debarshi Nandy; Manju Puri
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.
Keywords: small business; productivity; financing; natural experiment; banking deregulation
JEL Codes: G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased access to bank financing due to interstate banking deregulations (G21) | higher total factor productivity (TFP) in firms (D24) |
| increased access to bank financing due to interstate banking deregulations (G21) | financially constrained firms undertake productive projects (D22) |
| financial constraints (H60) | higher total factor productivity (TFP) in firms (D24) |
| increased access to bank financing due to interstate banking deregulations (G21) | increase in profits (D33) |
| firms just above the SBA eligibility threshold (L25) | experience a significantly greater increase in TFP compared to those just below the threshold (O49) |