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

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  • 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.

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  • Karthik Krishnan & Debarshi Nandy & Manju Puri, 2014. "Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment," NBER Working Papers 20149, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20149
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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