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

Karthik Krishnan, Debarshi Nandy and Manju Puri

No 20149, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G21 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-eff, nep-ent and nep-ppm
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Published as Karthik Krishnan & Debarshi K. Nandy & Manju Puri, 2015. "Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment," Review of Financial Studies, Society for Financial Studies, vol. 28(6), pages 1768-1809.

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