Credit Constraints and Firm Productivity: Evidence from Italy

This paper studies the impact of credit constraints on manufacturers' production. We exploit a matched firm-bank panel data covering all Italian companies over the period 1998-2012 to derive a measure of supply-side shock to rm speci c credit constraints, and study how it affects input accumulation and value added productivity. We show that an expansion in the credit supply faced by a firm increases both input accumulation (size effect) and its ability to generate value added for a given level of inputs (productivity effect). Results are robust to various productivity estimation techniques, and to an alternative measure of credit supply shock that uses the 2007-2008 interbank market freeze to control for assortative matching between firms and banks. We discuss different potential channels for the estimated e ect and explore their empirical implications.