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Credit constraints, firm investment and growth: evidence from survey data

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  • Gómez, Miguel García-Posada

Abstract

We assess the impact of credit constraints on investment, inventories and other working capital and firm growth with a large panel of small and medium-sized enterprises from 12 European countries for the period 2014-2016. The data come from the Survey on the access to finance of enterprises (SAFE), a survey that is especially designed to analyse the problems in the access to external finance of European SMEs. The key identification challenge is a potential reverse-causality bias, as firms with poor investment and growth opportunities may have a higher probability of being credit constrained. We implement several strategies to overcome this obstacle: proxies for investment opportunities, lagged regressors, random effects and instrumental variables. Our findings suggest that credit constraints, both in bank financing and other financing (e.g. trade credit), have strong negative effects on investment in fixed assets, while the impact on firm growth and working capital is less robust. JEL Classification: G30, G31, G32

Suggested Citation

  • Gómez, Miguel García-Posada, 2018. "Credit constraints, firm investment and growth: evidence from survey data," Working Paper Series 2126, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20182126
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    2. Brunello, Giorgio & Gereben, Áron & Weiss, Christoph & Wruuck, Patricia, 2020. "Financing constraints and employers' investment in training," EIB Working Papers 2020/05, European Investment Bank (EIB).

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    More about this item

    Keywords

    firm growth; instrumental variables; investment; ordered probit; working capital;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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